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 (NAS: 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.

At the time thisarticle was published 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.

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