Focus Media Basking in the Near-Term Glow

Even those who like the stock acknowledge the need for caution, particularly from a competitive standpoint. There's no shortage of rival firms now trying to edge in on Focus Media's core business of running ads in office buildings, which offers tempting 70%-plus profit margins.

Two competitors -- Beijing All Media and Culture Group, and Shanghai Media Group -- are both developing a substantial presence in office TV advertising in their respective cities. Such local media outfits "may have several advantages, including a broader range of media content [and a] closer relationship with local government," writes Morgan Stanley analyst Richard Ji. (Morgan Stanley has done investment-banking for Focus Media within the past year.)

Ji, who has an overweight rating on the shares, points out that as Focus Media tries to sell more display ads in supermarkets, airports and trains, it will increasingly run up against ad firms that specifically focus on these markets (and can claim they're better at targeting the right customers).

Ji still likes the stock, citing Focus Media's "nationwide scale, brand recognition, and superior operation." But he says it will need to keep tabs on rivals to maintain its market lead.

Given its focus on the still-emerging and unpredictable ad display market, Focus Media looks likely to remain one of the more controversial of Chinese stocks. But for the moment, bullish investors seem inclined to disregard longer-term potential risks and opt for the teacup-half-full approach.