Sometimes, you've got to love it when markets react irrationally, especially when the craziness gives long-term investors opportunities to build positions in unfairly punished stocks.

Such is the case with Focus Media (NASDAQ:FMCN), the largest out-of-home advertising operator in China, which reported results late last week.

This past Thursday, Focus Media reported results for the second fiscal quarter ended June 30, and the numbers put the strength of its business model on full display. Revenue came in at $50.6 million, an increase of 246% over last year's period, and narrowly ahead of analyst expectations. Pro forma earnings put in a similarly robust performance, coming in at $0.38 per American Depositary Share, a penny above Street estimates and 153% ahead of last year's quarter.

I know, I know ... sometimes, having revenue increase faster than income is a red flag signaling a weakening in margins. That's not the case with Focus Media, though, since net margins actually increased to 39.6% in the quarter, up from 32.6% in last year's period.

No, the main culprit in the relative underperformance in earnings was that the company had roughly 53.3 million American Depositary Sharers outstanding at the end of the quarter, a 64% increase over the second quarter of 2005.

This jump in shares outstanding isn't too surprising, since Focus Media went public only last July, has used its stock as currency for acquisitions, and just this past June completed a secondary offering at $54 per share. In my Foolish opinion, the company's ability to post such strong earnings-per-share growth in the face of such dilution was quite impressive.

Do you think the Street was equally impressed?

Judging by the 8% decline in shares of Focus Media on Friday, I believe the answer would be "no." Instead of focusing on the company's pretty incredible ability to integrate new acquisitions while driving margin improvement, analysts latched on to what they perceived as weak guidance for the third quarter. Specifically, Focus Media said it expected revenue of $58 million to $60 million while analysts had expected $60 million.

Hmmm ... I don't know about you, but dinging a stock by 8% because revenue might come in flat or 3% below expectations seems a bit excessive, especially since even the lower number still represents a 15% sequential growth rate, and more than 197% increase on a year-over-year basis.

I'm also somewhat perplexed by the Street's focus on the revenue number. That pro-forma net income was expected to come in at $26 million and $27 million, or $0.49 to $0.51 per share, seemed to be ignored. Considering that the average Street estimates calls for earnings of $0.43 per share, I'd have thought that the upside to earnings would more than negate any possible disappointment in the top-line figure.

Now, it's very possible that analysts are expecting additional dilution from acquisitions this quarter, but Focus Media now has more than $157 million in cash and has already scooped up all of its major competitors in the Chinese market, so I think that's unlikely. For the sake of argument, let's assume an additional dilution of 5 million shares -- that still leaves earnings guidance at $0.45-$0.46 per share, still ahead of expectations.

Simply put, I believe that the market experienced one of its periodic episodes of irrationality. Patient, long-term investors might consider picking up shares of China's premier advertising play at a temporary discount.

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Fool contributor Will Frankenhoff does not own shares in any of the companies mentioned above. The Fool has a disclosure policy.