GigaMedia: The Worst Investment Ever?
GigaMedia (GIGM) is a 5-star CAPS stock. It has 2,139 outperform ratings against just 34 underperform ratings. But since Bill Mann recommended the stock in Global Gains in our January 2007 issue, it's down 40%. That's bad, but not that bad when you measure it against an MSCI EAFE global index that's down 34%.
But as I've said in the past on this blog, when it comes to measuring returns, you should do it against more than just the market. You need a peer group that will help you decide if your stock is actually a good company, or if it's just benefited or been hurt by sector forces.
When you stack GIGM up against a peer group, it looks pretty bad. Consider this selection of Asian online gaming and other Internet properties:
Company, Return since December 2006
So not only has GIGM been a poor performer, but it's missed out on a rising tide that lifted a lot of boats to pretty high levels. Seeing that should drive home the point that something is not right with this company...and that's why it's so important to cross-benchmark your returns on your portfolio and on individual companies to the market as well as peers and peer groupos.
As for GIGM
Now, I agree that the stock is cheap given its balance sheet, ongoing operations, and opportunity in the Asian gaming market, but this is one I'd sell as soon as I thought I could get fair value because I don't see the type of business quality that would justify any sort of above average multiply or create years of compounded returns on capital.
So why the overwhelmingly positive sentiment here on CAPS? I don't know.