Why China Mobile Games (CBGE) Is Falling Today

NEW YORK (TheStreet) -- China Mobile Games and Entertainment (CMGE) was falling 8.3% to $23.25 Friday following the pricing of a follow-on public offering of 3,442,000 American depositary shares.

The mobile game publisher priced the 3,442,000 American depositary shares (ADS) are $24 an ADS. Each ADS is worth 14 Class A ordinary shares. The offering is expected t close March 26, 2014.

Chine Mobile Games will use the net proceeds from the offering for general corporate purposes, which is says may include game development, game acquisition, intellectual property acquisition, overseas expansion, and working capital.

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TheStreet Ratings team rates CHINA MOBILE GAMES -ADR as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate CHINA MOBILE GAMES -ADR (CMGE) 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 robust revenue growth, largely solid financial position with reasonable debt levels by most measures and impressive record of earnings per share growth. However, as a counter to these strengths, we find that we feel that the company's cash flow from its operations has been weak overall."

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

  • CMGE's very impressive revenue growth greatly exceeded the industry average of 10.3%. Since the same quarter one year prior, revenues leaped by 405.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CMGE's debt-to-equity ratio is very low at 0.01 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 3.55, which clearly demonstrates the ability to cover short-term cash needs.
  • Compared to other companies in the Software industry and the overall market, CHINA MOBILE GAMES -ADR's return on equity significantly trails that of both the industry average and the S&P 500.
  • Powered by its strong earnings growth of 148.83% and other important driving factors, this stock has surged by 229.10% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
  • Net operating cash flow has significantly decreased to -$8.85 million or 313.97% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • You can view the full analysis from the report here: CMGE 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.

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