Chinese Video Game Company Could Be A Winner

Most western video game fans and investors will not know about Changyou.com, but it is a great opportunity to acquire heavily discounted stock. It’s a Chinese video game developer and publisher that emerged from Sohu in 2009, and is famed in China for is RPG franchise TLBB.

It’s a game series that is arguably past its peak, but still puts up solid results to deliver regular profits since enabling its developer to accrue a significant pile of cash. And with some recent movements and a little information about the company and other related entities, there is a reason to believe there is great potential for this stock.

Promising Numbers

After paying out a special dividend of around $500 million in June, Changyou currently stands with around $170 million in cash and absolutely no debt on its books.

The company’s market capitalisation is roughly $500 million, and it trades at just 4.5x the current year’s projected earnings. Back out this cash position, plus property holdings and other assets, and the stock looks like even more of a bargain.

Signs Of Winning Potential

Changyou’s majority shareholder is still Sohu, but the parent company is in need of funds to offset weaknesses in its core business.

There is the potential for them to take both companies private in the foreseeable future, so it’s not unreasonable to predict another special dividend payout within the next 12 months.

Such a move would once again move funds back into Sohu and lay the foundations for taking the gaming company private to funnel profits into the parent company without the expense of a premium on the offshoot’s finances at the time of a potential buyout.

Final Thoughts

In most cases, it’s not prudent to purchase stock in order to hope for an acquisition to power your returns. But in this case, there is a strong chance that investors will enjoy a substantial premium if the beaten-down company is put up for sale.

And even if Changyou isn’t put up for sale, and it remains a public entity, investors can move forward feeling pretty confident that the stock that they are buying is currently at a deep-value price.