FMCN hit all time high level today, breaking above $70 level. I have said in my previous message that despite the stock advance after the assuring Q3 earning, the stock should be bought.
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In my opinion, as investors feel more confident about the company revenue growth and expanding operating margin, the stock will continue to rack up impressive gains. This may be especially so as the US economy is slowing down and earning pictures for economically sensitive companies will likely to be cloudy in the coming times. Chinese economy shows much better growth potential and as things in the US get turbulent, investors may look outside the US for better growth opportunity. Consequently, I believe some exposure to Chinese stocks may be a shrewd idea. In our group, we cover CTRP and FMCN as two ideas that may benefit from great Chinese economic growth story.
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Today WR Hambrecht initiated the stock with the buy rating with the target price of $85. This coverage may have served as the positive catalyst to push the stock price higher. The firm noted that Tier 1 city network expansion is maturing and the critical mass has been attained. This will set the company up nicely for the improving operational margin. The firm cites expanding opportunities in the Tier 2 cities as the next source of robust company revenue growth. The research report outlines in-depth various segment of the business which includes in-store, Framedia, in-moving advertising, outdoor as well as mobile. Although mobile is currently very small portion of the overall business, its potential is enormous as China has the largest world population and everyone will carry cell phones sooner or later. (if you want to view the report, email me using investorhives.com mail and let me know the mail address: I am willing to share the report.)
The firm expects 40% sequential revenue growth on YOY basis till 2009. For 2009, the firm predicts the revenue roughly in the range of 600 mil with EPS estimate of $4.62. So by sometime in 2008, amid excitement over 2008 Olympics, the share could be trading as high as $140 if the investors are willing to give PE of 30 based on forward earning in 2009.
Although this is very forward looking statement, the whole point of this exercise is that FMCN has plenty of growth ahead.
Although China is risky proposition and FMCN does have plenty of speculative elements, I believe that the business proposition that FMCN is undertaking is compelling. I believe that the growth prospect and earning power of this company will continue to excite investors as we near 2008 China Olympic. As such, I think risk tolerant investors, investing with FMCN could be very rewarding.
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