There are many different avenues to look at when one is searching for technology stocks to invest in. One of the most basic differences is in hardware technology stocks versus software technology stocks. Obviously, some companies offer a combination of both, but for some of the smaller technology stocks, it can be advantageous to be solely on the software side of the business. This is because, as adoption by consumers grows, corporate earnings are easier to scale up.
One market that is extremely attractive, yet investors are hesitant to be active in these days, is that of Chinese technology stocks. American investors are hesitant to look at Chinese technology stocks because of questionable accounting practices. Unfortunately, there have been some unethical firms that have put the whole sector in question. No matter how one might categorize companies in China, no one questions the massive potential growth for corporate earnings in that nation.
Giant Interactive Group Inc. (NYSE/GA) is one of the more interesting technology stocks, because it is one of the leading developers for online games in China. The company specializes in multiplayer online games to drive corporate earnings.
The company reported third-quarter 2012 financial results in which revenue was $86.4 million, up 18.6% from the same quarter in 2011. Corporate earnings on a non-GAAP basis were $54.5 million, up 20.2% from the corporate earnings earned during the same quarter in 2011. (Source: ?Giant Interactive Announces Third Quarter 2012 Results,? Giant Interactive Group Inc., November 13, 2012, accessed December 15, 2012.)
This is a stock that is trading at a forward price-to-earnings (P/E) ratio of only 5.8, a significant value compared to its growth margin. Profit margin of almost 56%, return on equity of 46.25%, no debt and $1.58 of cash per share. (Source: Yahoo! Finance, accessed December 15, 2012.)
These are great increases, as they show underlying strength in the actual games themselves. If players don?t like the products offered, they would certainly play less. That?s not what the company?s results show; in fact, it?s just the opposite.
Chart courtesy of www.StockCharts.com
With the valuation still attractive and corporate earnings continuing to grow along with revenue, the stock remains in a bullish channel. Stock price remains above its 200-day moving average, although recent days have seen some sellers enter the market. This could be due to concerns regarding Chinese technology stocks in general, not specific to this one company.
With technology stocks being a highly competitive market sector, the key to corporate earnings growth is developing a product in which customers continually want more of the product, and are willing to spend money on it.
The only question might be the long-term viability of technology stocks that develop such products as online games. The reason being is that competition is intense, which means corporate earnings growth can be affected through new product offerings by other technology stocks and price competition. Only time will tell. However, no one questions the appetite for online games in China.
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Tags: China, Corporate Earnings, Technology Stocks
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