Perfect World Shares Jumped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of online game maker Perfect World (Nasdaq: PWRD  ) jumped 16% today after the company responded to allegations of fraud.

So what: On Monday shares took a dive after a blog on Tianya, a Chinese social-networking site, alleged an investigation was ongoing at the company. Today the company responded with a “firmly and forcefully” written nine-point press release. Maybe the most notable thing is that an independent audit committee of the company’s board has been reviewing the allegations and independent legal counsel will assist in the review.

Now what: This kind of response is exactly what you want from management when accusations are brought up, although I’m not sure the words “firmly and forcefully” will help convince anyone. Investors are still worried any time fraud is brought up in relation to Chinese small-cap companies because too often it has proved to be true. Since I don’t know which side to believe, I’ll enjoy my seat on the sidelines and let the bears and bulls battle it out in the market. If past experience is any indication, it could be a long, drawn-out battle.

Interested in more info on Perfect World? Add it to your watchlist by clicking here.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (4) | Recommend This Article (0)

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  • Report this Comment On January 10, 2012, at 9:21 PM, asfasfasfdf wrote:

    well this kind of stock can give huge returns for those that dare to believe at this multiyear low point priced at a ridiculous PE of 4 and price to book of 0.8, anyways if you did go through the press release and the SEC filings you will realise that what the company said is so very true

  • Report this Comment On January 10, 2012, at 9:24 PM, asfasfasfdf wrote:

    also if you had gone through the earnings call, you will realise that the shares are ready to jump in the next few months as the dividend policy will be out soon, which is one of the best proves of its huge profits and vast cash reserves

  • Report this Comment On January 10, 2012, at 9:29 PM, asfasfasfdf wrote:

    furthermore, the 100m USD share buybacks already proves in some part that the cash PWRD holds is there, with the sharebuybacks below Net tangible value and at PE 4, the earnings per share will rise exponentially in the future together with increased monetization activities in Q1 after the slew of new games such as war of immortals and heaven sword and dragon sabre and star trek online is released and partnership with Nexon definitely shines with potential for increased source of income from Korea

  • Report this Comment On January 10, 2012, at 9:33 PM, asfasfasfdf wrote:

    The legal actions taken by CEO Michael Yufeng Chi against Tianya are also out and from the looks of it there are 2 legal representatives working on it not just one how many more positive stuff can i come up with almost endless, and dont forget that Perfect World's auditors is one of the Big 4 and not some shady auditor so what are the chances of fraud you see in a counter like this? to me almost none

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