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NEW YORK (TheStreet) -- Perfect World (PWRD) was falling -9.5% to $16.60 Tuesday after concurrent PC users fell sequentially in the first quarter, and despite positive earnings.

For the first quarter Perfect World announced earnings of 70 cents a share, beating the Capital IQ Consensus Estimate of 56 cents a share by 14 cents. Revenue grew 42.5% from the year-ago quarter, but fell 2.5% from the previous quarter to $143.3 million. Analysts expected revenue of $140.7 million for the quarter.

Perfect World announced that average concurrent PC users dropped 18% from the previous quarter to 662,000 users. The company said the drop-off was due to anti-cheating efforts and seasonality. Mobile games help offset some of the decline.

Gross margin fell to 73.6% in the first quarter, down from 75.1% in the fourth quarter and 77.8% in the year-ago quarter.

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TheStreet Recommends

TheStreet Ratings team rates PERFECT WORLD CO LTD as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate PERFECT WORLD CO LTD (PWRD) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, solid stock price performance and increase in net income. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 6.6%. Since the same quarter one year prior, revenues rose by 38.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • PWRD's debt-to-equity ratio is very low at 0.05 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, PWRD has a quick ratio of 1.65, which demonstrates the ability of the company to cover short-term liquidity needs.
  • Compared to its closing price of one year ago, PWRD's share price has jumped by 45.75%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, PWRD should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Software industry. The net income increased by 142.9% when compared to the same quarter one year prior, rising from $14.51 million to $35.25 million.
  • You can view the full analysis from the report here: PWRD Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.