Why China Digital TV Struggled in 2011

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As 2011 comes to a close, it's a great time to look back at what happened to the stocks that interest you. By making sure you know the important things that a company accomplished -- as well as the setbacks it experienced -- you can make a better decision about whether it's a smart investment for your portfolio.

Today, let's take a look at China Digital TV (NYS: STV) . Founded in 2004 and based in Beijing, its specialty is "smart cards" that connect set-top boxes and televisions to digital cable systems. They're the Chinese equivalent of the CableCARDs that CiscoSystems (NAS: CSCO) and Motorola Mobility (NYS: MMI) , among others, sell in America. It's been growing its market share, but during the past year its stock price didn't exactly grow:

Stats on China Digital TV

Year-to-Date Stock Return(49%)
Market Cap$198 million
Revenue, Trailing 12 Months$103 million
1-Year Revenue Growth59.3%
1-Year Profit Growth32.1%
CAPS Rating (out of 5)***

Source: Motley Fool CAPS, Morningstar, Yahoo! Finance

What happened to China Digital TV this year?
Part of what sent the stock down this year were some earnings reports that fell a bit short of analyst estimates. Indeed, the stock fell more than 17% on that news alone in November, and about 14% when it happened in May. But folks selling just because of earnings misses are missing the bigger picture.

Check out the revenue and profit growth above -- the company isn't exactly crawling along. Annualized gains for both over the past five years are in the double-digits, as well.

In a conference call after the latest earnings report in November, management offered these tidbits:

  • "In the third quarter, we were pleased to see robust demand for our CA products, as provincial-level network consolidation and investment in digitalization projects continued to progress quickly."
  • In the third quarter of 2011, the number of China's digital cable TV subscribers reached 99 million. This included 4 million newly added digital cable subscribers, compared to 3.6 million newly added digital cable subscribers in second quarter of 2011. (Note that 99 million is a lot of people -- about a third of the entire U.S. population!)
  • The company is looking to expand internationally and is cultivating business in Thailand already.

A promising catalyst for growth is China's mandated switchover to digital TV by 2015. On top of that, another development during the year that bodes well for the company is that China recently hiked the income threshold for taxes, reducing the tax burden for its many less-affluent citizens. This frees up more money which will be spent on food and housing, of course, but some of it is also likely to be used for digital television services. It's also likely to benefit other Chinese companies of possible interest, such as the inexpensive restaurant chain Country Style Cooking (NAS: CCSC) and the mobile telecom giant China Telecom (NYSE CHL).

Dividend appeal, too
Though it doesn't offer a regular dividend, it has rewarded shareholders with occasional special dividends, including a hefty one to be paid at the end of this month to those who owned the stock back in June. At the stock's recent price, the yield for this dividend is in the neighborhood of 17%! Those seeking hefty dividend income via the likes of mortgage investment specialists Annaly Capital Management and Chimera Investment might want to consider diversifying their portfolio with this stock. The mortgage investors will see profits shrink some when interest rates rise, but China Digital TV is likely to be less affected by that.

China Digital TV is clearly an intriguing company worth watching. If you're thinking of buying or you already own it, learn more about it and be sure you're confident in its potential. If you've decided it's not one of your best ideas, then look elsewhere, such as in our free report detailing The Motley Fool's pick for the top stock for 2012. It's free only for a limited time, so check it out today. Click here to add China Digital TV to My Watchlist, which can help you zero in on all of our Foolish analysis on it and all your other stocks.

At the time this article was published

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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