Forgotten Giant Is a Winner

 | Aug 15, 2011 | 11:00 AM EDT
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Giant Interactive (GA) is up about 10% in the last month, while the Nasdaq is down about 10%.

Why? Because it's got a winning game on its hands -- ZT2 -- that is performing well in the early stages of its release. It's also still trading at a very low price-to-earnings ratio relative to several of the high-momentum stocks that faced a buzz saw over the last month of global uncertainty.

GA was unloved and unrecognized before the global financial crisis renewed itself. So the weak-hand sellers had long since sold out of the stock.

But that doesn't fully explain it as the same logic applies to Perfect World (PWRD) and that stock has still declined in the past few weeks.

With GA, its winning game is more clear cut at this point among Chinese gamers and this knowledge is being reflected in the price action of the stock, even in a terrible tape.

I suspect that this stronger uptrend is still at the beginning stages for GA and therefore would be worth looking into in more detail.

Stocks like GA and PWRD are also interesting to think about in relation to the expected IPO of Zynga. Either American investors are going to wildly overpay for Zynga or they are already wildly under-paying for these Chinese gaming companies.

GA is currently sporting a forward price-earnings ratio of less than 11x. PWRD has one below 6x.

Probably both these stocks (and other gaming stocks) will see their multiples increase over time when the Zynga IPO comes. Also, Zynga's will probably come down over time.

There's no magic for what Zynga does that's different than GA. They're both just gaming companies that make money when creative people make really interesting games.

GA is still overlooked and deserving of a higher stock price.

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volatility is quite low here, and we could see some downsides here in the short term. ...



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