Yesterday I bought 1000 shares of Linktone (LTON) for $1.69/share and $4.95 commission for a total investment of $1694.95.

Linktone is, according to their latest 6k, ” one of the leading providers of wireless interactive entertainment services to consumers in China.  Linktone provides a diverse portfolio of services to wireless consumers and corporate customers, with a particular focus on media, entertainment and communications.  These services are promoted through the Company’s strong distribution network, integrated service platform and multiple marketing sales channels, as well as through the networks of the mobile operators in China.  Through in-house development and alliances with international and local branded content partners, the Company develops, aggregates, and distributes innovative and engaging products to maximize the breadth, quality and diversity of its offerings.” Linktone is based in China. But don’t hold that against them.

Why buy LTON?

1) Net Net stock. I know I sound like a broken record. But I love NCAV stocks. As a group they tend to outperform the general market. My estimate of  Net Current Asset Value is between $2.46 – $2.63/share, depending on if you use Graham’s original formula or a modified version of the formula.  More importantly, for LTON is to include Graham’s margin of safety which was always 1/3. That puts the buy price at between $1.62 & $1.73/share. My buy price being on the high side of this range.

2) Linktone is a technology/media company. I like these kind of companies because often there are larger positive swings in the stock price, to the upside when a positive surprise is announced.

3) LTON has regained profitability according to their 6k dated 12/4/09. Although it is not explosive it has improved from it’s losses of 2008. Also in the same 6k, “Gross margin increased to 39% of net revenues, or gross revenues minus business tax, compared with 34% for the second quarter of 2009. The sequential increase was primarily due to relatively higher profit margin service fees from Linktone’s Indonesia VAS project.”

Risks?

1) Chinese stock. If you believe the bubbles scenarios, then the whole Chinese market needs a major correction. I am not buying the whole Chinese stock market, but  a piece of this one asset rich company.

2) Dilutive share practice- The number of shares of LTON has increased from approx 23 million ADS shares in 2007 to over 42 million in Q3 of 2009.

3) Growth Through acquistions- As I have stated previously, I am not a big fan of growth through acquistion. LTON purchased 50.1% of  Letang a Chinese, a mobile gaming company. The terms have not been fully disclosed but it seems their is only a couple million cash down. I am reserving judgement on this purchase.

Disclaimer: I own shares of LTON. I wasn’t discussing this company hypothetically. Whether you should buy this stock is entirely up to you. You shouldn’t trust anyone without doing your own research. Yeah, even if that person is me. I am not obliged to notify you in any fashion if I change my mind about this stock. Although since this is a personal blog, the only that would prevent me is probably my paying job.

One Response to “Linktone (LTON) NCAV Stock – Buy”

1. Jae Jun
   February 11th, 2010 @ 2:50 pm

   I own LTON as well and bought after the big drop from their earnings as they announced that China mobile will be displaying usage charges to their customers on the purchase whereas they just bought it without knowing previously.

   Cheap IMO buy I need to keep an eye on it.

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