"SNDA has what we consider a healthy balance sheet, with some $27.50 per ADS in short-term cash and equivalents as of December 2009, following the IPO of GAME."
In other words, SNDA is trading at a trailing P/E ratio of 4.4x on a net-of-cash basis. This is an incredibly cheap valuation given the fact that revenue and EPS growth rates have exceeded 50% annually over the past three years (source: TheStreet.com, http://bit.ly/bUcWrY). The company also has solid market share in the Chinese market as it now boasts over 10.43 million active playing accounts (source: S&P). I was further impressed to see a number of material holdings from several highly respected institutional players, including Fortis, Invesco, and Artisan (source: Yahoo! Finance). Also note that 48% of the company is held by its CEO Tianqiao Chen (source: S&P). As such, management is highly incentivized to enhance shareholder value.
I am very bullish on SNDA at the current price level. However, given the high degree of speculation currently taking place in global equity markets and China in particular I also think it would be wise to exercise caution and hedge one's position either partially or fully using a short position in a broad Chinese ETF such as FXI or through a long position in the 2x inverse ETF, FXP.
disclosure: author was long SNDA and FXP at the time of writing with an adjusted hedge ratio of 50%, author is a frequent trader and will use a trailing stop loss of approximately 95% of market price pending more in-depth analysis
Interesting...
ReplyDeleteSince SNDA is optionable: How about buying, say, Jan'11 50 calls instead of stock?
That's not a bad idea at all. Jan'11 50 calls are selling with an implied vol of 37.63% vs. historical vol of 60.6%. In other words, they are relatively cheap. Also, the bid/ask looks reasonably tight. This is definitely an alternative way to play SNDA.
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