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Mr. Market seems to have forgotten about The9 (Nasdaq: NCTY ) . Now is your chance to pick up the out-of-favor online gaming specialist in China for a pittance.
The9 isn't a great buy because of last night's earnings report. Earnings soared 158% to $0.52 a share and net revenue climbed 29% to $60.2 million, but it isn't good enough for Wall Street. Analysts were looking a profit of $0.55 a share on $68.2 million in net revenue.
The9 also isn't a great buy because it's a leader in its niche. Over the past few weeks:
- NetEase.com (Nasdaq: NTES ) posted a 41% increase in quarterly revenue to $118.8 million.
- Sohu.com (Nasdaq: SOHU ) is a relative newcomer, but it too is on a trajectory to lap The9 after generating $54.6 million in online gaming revenue this past quarter.
- Perfect World (Nasdaq: PWRD ) is on a similar pace, after growing its top line by 79% to $56.2 million.
- Pioneer Shanda Interactive (Nasdaq: SNDA ) reports in two weeks, but analysts expect the company to generate more than twice the revenue that The9 rang up.
Finally, The9 isn't a great buy because it's a proprietary powerhouse. The company's claim to fame is that it is the one responsible for rolling out Activision Blizzard's (Nasdaq: ATVI ) World of Warcraft in China. It will also get some FIFA Online loving since Electronic Arts (Nasdaq: ERTS ) acquired a 15% stake in The9 last year, but the company is just now starting to produce some in-house titles. That is important because even Activision Blizzard is playing the field. It brokered a licensing deal with NetEase this summer for many of its other franchises.
So why is The9 such a screaming buy? Well, the company closed out the quarter with $329.5 million in cash and short-term investments -- or $11.90 a share when divided by its 27.7 million shares outstanding -- with no long-term debt.
Disappointed with the company's miss, the stock opened at $11.70 this morning. Can you believe it? A perfectly profitable company working on chunky profit margins was actually dumped for less than its liquidity! The stock quickly bounced back, a great sign that the market is only temporarily irrational. However, warts and all, investors are getting a great deal this morning.
The9 may not be an earnings beater, an industry leader, or a proprietary feeder, but in these iffy times, it's a stock that is unlikely to head much lower as long as money keeps flowing in the right direction.
Three more ways to play The9: