Why Perfect World Shares Crashed

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: Shareholders of online game developer Perfect World (Nasdaq: PWRD  ) are finding out just how imperfect its earnings results are becoming. The stock had fallen by as much as 16.5% following the release of first-quarter results.

So what: For the quarter, Perfect World's sales growth was flat at $114.1 million, with the company recording an adjusted profit of $0.77. Although this might seem strong for a company now trading in the single digits, both figures missed Wall Street's expectations for a profit of $0.79 on sales of $117.4 million. Even worse, Perfect World forecast its second-quarter revenue to range between $103 million and $108.5 million, well below the consensus forecast of $117 million.

Now what: I like Perfect World for its growth and I even made it one of my 10 mid caps to rule them all selections. However, its earnings outlook flip flops more often than any company I know. Just last year, Perfect World reported blowout numbers then guided its results lower just weeks later. With the gaming industry under serious pressure to consolidate due to rising development costs and Perfect World's less-than-spotless history of forecasting its own growth, I'd considering passing here and waiting for more visibility in the stock.

Craving more input? Start by adding Perfect World to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 01, 2012, at 10:07 AM, steveat wrote:

    Analysts doubled their predictions from Q4. Even with a doubled prediction, they came pretty close to hitting it...only a couple cents off. They are fine...on the books they are worth at least $20..NOW..

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1898363, ~/Articles/ArticleHandler.aspx, 11/23/2014 9:56:18 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement