Changyou.com is a small cap tech stock in China. With a market cap of $700M and positive earnings it should have performed better recently. However, with weakness in China’s stock market and ADR stocks on the NYSE it got crushed lately. As per InvestingHaven‘s viewpoint on crashing stocks and markets, and the potential opportunity they bring, we assess whether Changyou.com is buy or a sell with this Changyou.com stock forecast for 2019.
First, the million dollar question of course is what China’s stock market will do as it is now at a make-or-break level. Regardless of trade wars the point for investors is to monitor that monthly closes of the SSEC remain above 2700 points, read our recent articles on this topic.
Provided China’s stock market does not implode we may have an interesting stock Changyou.com stock forecast for 2019 for you.
Changyou.com Stock Forecast 2019: the chart
As per our mantra ‘start with the chart’ we want to see what the long term chart of Changyou.com is telling us. In other words the monthly chart is the basis for our Changyou.com stock forecast 2019, and fundamentals provide complementary information, not the opposite.
Price of Changyou.com is in a never ending downtrend in the form of a perfect channel.
It closed as a ‘gap down doji hammer’ at the close of trading on August 3d. This is a technical term to indicate a strong sell off during trading although it recovered strongly before closing. Note: the chart of Changyou.com embedded below is one from August 3d.
It should not come as a surprise that sentiment on Changyou.com is extremely bearish. The million dollar question in this type of situation is whether this is a good entry point from a contrarian perspective.
Changyou.com Stock Forecast 2019: important price points
Where is this stock going from here?
InvestingHaven’s research team reckons that a temporary bottom is in provided the stock continues to trade above $12.5. Any break below $12.5 is a breakdown (in actionable terms this is the stop level).
Furthermore, the other important level is $15. As seen on the chart there is a gap between $15 and current price levels. This gap should be filled as a precondition before prices can move higher again.
Given the above outlined points our verdict for Changyou.com (symbol CYOU) as part of our Changyou.com stock forecast 2019:
- Short term this stock will continue to be volatile as a result of the strong fight between bulls and bears, in which bears want to break support level for a cataclysmic type of breakdown.
- Mid to long term this stock will be bullish provided China’s stock market does not break down, $12.5 will be respected as well as $15 will be broken to the upside.
That said our Changyou.com stock forecast 2019 lead us to price targets of $21 and $33 respectively.
Changyou.com Stock Forecast 2019: the fundamentals
As a last checkpoint as part of any forecast we review fundamentals and outlook. As per financials of CYOU we see a company that has a healthy backbone though revenue is shrinking.
It’s earnings per share are 0.86, future earnings are expected to rise, cash at balance is +100M, P/E ratio is a healthy 15x and future P/E should be 8x. All great financials.
However, the issue is revenue. In 2015 there was a serious fall in revenue, which coincides with the steep fall on its chart. In recent quarters we see a fall from $145M to $138M to $111M (recent quarter closing June 30th, source MarketWatch).
As per the company’s outlook, one of the most watched for data points: “For the third quarter of 2018, Changyou expects total revenue to be between US$100 million and US$110 million, including online game revenue of US$80 million to US$90 million.”
What this means to us is that (1) revenue fall is slowing down (2) the company better meets expectations to avoid a breakdown (3) any beating of expectations will result in a serious rally to meet our price targets outlined in this article.
Note: This is not advise to engage in trades but this article is meant for educational purpose only.
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