Shanda Games Limited(ADR) (GAME): Can This Small Cap Stock Engineer a Turnaround?

Rays of hope

The company is slated to release a few games and expansion packs this year, such as the highly-anticipated title Rift along with AION 4.0, Final Fantasy XIV, World Zero, and Dungeon Striker. In addition, Shanda’s Korean subsidiary Actoz has hit gold with its mobile game titled Million Arthur and was the top grossing app on Apple Inc. (NASDAQ:AAPL)’s app store in Korea for 42 days on the trot since being launched on Dec. 20.

Also, Shanda’s games have been gaining traction overseas driven by solid performance of titles such as Dragon Nest. As a result, Shanda witnessed a sequential improvement of 61% in its overseas revenue in the previous quarter. These are a few positive takeaways from Shanda’s last quarterly report which was otherwise quite gloomy and might help the company arrest its declining revenue. But, as I mentioned earlier, management has been upbeat about the company’s prospects and strategies since last year but positive results and stock price performance haven’t followed suit.

The bottom line

So what should investors do in such circumstances? On one hand, Shanda’s revenue is on a slide while on the other there are a few sparks which might light up its engine. Thus, potential investors’ decision depends entirely on their risk profile.

Considering the fact that Shanda trades at a dirt-cheap trailing P/E of just 4.8 and might perform well if its games click, those willing to take a risk might initiate a long position. As far as the cautious ones are concerned, they should watch the stock from the sidelines and wait for signs of a turnaround.

The article Can This Small Cap Stock Engineer a Turnaround? originally appeared on Fool.com and is written by Harsh Chauhan.

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