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Shanda Interactive Entertainment (SNDA): Shares advance in positive trading channel

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Shanda Interactive Entertainment (NASDAQ: SNDA) is a leading interactive entertainment media company in China. The firm offers a diversified content portfolio, including massively multi-player online role-playing games, online board games, network PC games, cartoons, works of literature and music. Shanda's interactive platform attracts a loyal base of users, who pay access subscription fees. Electronic Arts (NASDAQ: ERTS) is a major competitor.

The company pleased investors earlier in the month, when it reported fiscal Q2 EPS of 56 cents and revenues of $122.1 million. Analysts had been looking for 51 cents and $115.3 million. Revenues from massively multiplayer online role-playing games increased 47.0% year-over-year and 8.5% quarter-over-quarter, to a record high of $101.3 million. Oppenheimer subsequently upgraded the stock to "outperform" and Brean Murray reiterated its "buy" rating.

The news kept SNDA shares cycling through a positive two-month trading channel. The price is currently consolidating near the base of that channel, where oversold Stochastic and CCI technical parameters suggest the potential for a rise back toward the top. The close correspondence of the stock's 50-day moving average to the channel base backs the rebound notion.

Altogether, brokers now recommend the issue with five "strong buys", nine "buys" and three "holds". Recent price targets are in the $33-$39 range. Analysts see a 29% average annual growth rate, through the next five years. The SNDA P/E ratio (12.82), Price to Cash Flow ratio (10.89), Sales Growth rate (48.41%), EPS Growth rate (33.33%), Operating Margin (39.52%), Net Profit Margin (37.23%), Return on Assets (19.61%), Return on Investment (30.55%) and Return on Equity (30.41%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 18% of the outstanding shares. Over the past 52 weeks, the stock has traded between $20.85 and $40.71. A stop-loss of $23.00 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in either of the stocks mentioned above.

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Last updated: July 06, 2009: 08:14 AM

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