Why China Mobile Games & Entertainment Group Ltd. Shares Plunged

Why China Mobile Games & Entertainment Group Ltd. Shares Plunged

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 China Mobile Games & Entertainment Group Ltd fell more than 10% during Tuesday's intraday trading, then partially recovered to close down around 8.5% after the company turned in disappointing fourth-quarter results.

So what: Quarterly revenue more than quintupled year over year to $24.2 million, which helped China Mobile Games swing from a $1.7 million net loss this time last year to net income of $5.9 million, or $0.10 per diluted American depositary share. By contrast, analysts were looking for net income of $0.17 per share on sales of $29.64 million.

Now what: This in mind, China Mobile Games' average revenue per user also fell sharply from $15.05 per user in the same year-ago period to $4.09 in Q4. However, it did represent a notable uptick from ARPU of $4.09 last quarter, which indicates the downward cycle could be waning.

Still, the stock isn't exactly cheap trading around 15 times last year's sales and 26 times this year's estimated earnings. Keeping in mind those estimates are likely to drop once analysts have time to fully digest today's news, I think investors would be wise to let the dust settle before making any long-term decisions.

If you're looking for a stock with huge potential in the meantime, you're in luck!
Every investor wants to get in on revolutionary ideas before they hit it big -- like buying PC maker Dell in the late 1980s, before the consumer computing boom, or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hypergrowth markets. The real trick is to find a small-cap "pure play" and then watch as it grows in explosive fashion within its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 trillion industry. Click here to get the full story in this eye-opening report.

The article Why China Mobile Games & Entertainment Group Ltd. Shares Plunged originally appeared on Fool.com.

Steve Symington has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Amazon.com. 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.

Copyright © 1995 - 2014 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published