Bull Of The Day: Changyou (CYOU)

We’ve all got our little personality quirks and secrets that not everyone knows about us. Me, I’m an unapologetic gear head and video gamer. I also listen to Mexican Ranchero music sometimes when I write articles. One of the guilty pleasures I enjoy isn’t watching “The Bachelor” or drinking wine coolers, it’s massive multi-player online role playing games (MMORPGs). Think Dungeon’s & Dragons mixed with Facebook.

There’s one thing about these MMORPGs that appeals to the business side of me; their business models. Unlike a traditional game where you make a one-time purchase or the pay-to-win style casual games like Clash of Clans, most MMORPGs charge a monthly fee. These fees are typically between $8 and $15 a month. It’s a smart, nifty little way for companies to build a very sticky, consistent revenue stream and helps even out EPS versus traditional game developers.

Today’s Bull of the Day is a Chinese company that makes RPGs. Zacks Rank #1 (Strong Buy) Changyou.com (CYOU - Snapshot Report) is a developer and operator of online games in China. It engages in the development, operation, and licensing of massively multi-player online role-playing games, which are interactive online games that are played simultaneously by various game players. The company currently operates two multi-player online role-playing games (MMORPGs), including the in-house developed Tian Long Ba Bu and the licensed Blade Online. Changyou.com has three MMORPGs in the pipeline, which include the Duke of Mount Deer, Immortal Faith, and the Legend of the Ancient World.

The steady income stream has caused analysts to up their estimates on CYOU for the current year and next year. Over the last 30 days, analysts have increased their earnings estimates and pushed up the Zacks Consensus Estimate for the current year from $2.51 to $3.17 while next year’s numbers have jumped from $2.91 to $3.13.

The recent bullish sentiment on the street is evident in the stock chart for CYOU. When the domestic market troughed in mid-October 2014, CYOU shares were trading around $17. Since then, a series of bullish moves have taken the price all the way up to a fresh 52-week high of $35.27 in trading last week.

The stock pulled back from just below $35 to start May to the 21 day moving average. The Commodity Channel Index came down from overbought levels and crossed below the zero line ahead of the retrace to the 21 day. From there, buyers came in, pushing the CCI back through the zero line as shares began to rally again. With a positively sloped 21 day moving average down at $32.05 the stocks looks like it has a chance to breakout to highs again this week. 

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