Why Perfect World (PWRD) Hit a One-Year High Today

NEW YORK (TheStreet) -- Perfect World (PWRD) soared to a one-year high of $23.20 as of 2:21 p.m. EST on Friday after the China-based online game company, which focuses on massively multiplayer online role-playing games (MMORPGs), teamed with Chinese telecommunications giant Huawei to form a joint venture into the online gaming market.

Perfect World will design customized games for optimal performance on Huawei consoles, which should enhance players' gaming experiences, according to the agreement.

Huawei, which is nearly 30 years old, is the world's second-largest telecommunications equipment supplier and third-largest smartphone manufacturer.

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TheStreet Ratings team rates PERFECT WORLD CO LTD as a "hold" with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate PERFECT WORLD CO LTD (PWRD) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. 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 and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and feeble growth in the company's earnings per share."

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

  • The revenue growth came in higher than the industry average of 10.8%. Since the same quarter one year prior, revenues rose by 23.0%. Growth in the company's revenue appears to have helped boost the 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 1.89, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for PERFECT WORLD CO LTD is currently very high, coming in at 76.68%. Regardless of PWRD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, PWRD's net profit margin of 14.51% is significantly lower than the industry average.
  • PERFECT WORLD CO LTD has improved earnings per share by 39.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, PERFECT WORLD CO LTD reported lower earnings of $1.79 versus $3.05 in the prior year. For the next year, the market is expecting a contraction of 14.0% in earnings ($1.54 versus $1.79).
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Software industry and the overall market, PERFECT WORLD CO LTD's return on equity is below that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: PWRD Ratings Report

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