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TMFMmbop (42.19)

GigaMedia: The Worst Investment Ever?

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June 09, 2009 – Comments (4) | RELATED TICKERS: GIGM , ASIA.DL , SNDA.DL

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
ASIA +209%
SNDA +207%
JRJC +172%
SOHU +169%
BIDU +153%
NTES +112%
SINA +15%
GIGM -36%
NCTY -59%

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.

4 Comments – Post Your Own

#1) On June 09, 2009 at 5:21 PM, czech345 (< 20) wrote:

If you got in at $2.60, you are in good shape. And GIGM will be fine.

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#2) On June 09, 2009 at 10:20 PM, Novaflare (< 20) wrote:

It is still a great trade :P

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#3) On June 10, 2009 at 1:39 AM, checklist34 (99.72) wrote:

never heard of GIGM before, it looks pretty decent to me.

I know nothing of chinese gaming, and that should be noted by one and all before taking anything I say about it seriously.  :)

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#4) On June 10, 2009 at 10:16 AM, vitrified (98.52) wrote:

SINA is a long-time Stock Advisor pick. It hasn't performed much better.

BIDU is so volatile, I never pulled the trigger--sticking instead with Google in the internet-search sector, which I bought soon after it went public.  I don't know much about the other ones.

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