Among the biggest losers in Tuesday's early trading are
Perfect World (Nasdaq: PWRD)
Polypore International (
In the United States, video-game stocks have been trading at
multi-year lows, in part due to a dearth of hot new gaming consoles
that typically spur demand for new gaming titles. Over in China,
it's another problem: Consumer interest in online multi-player
gaming is cooling. Not only are Chinese consumers spending less
time playing, but they are increasingly staying away from the
You can see the trend in just-released results for Perfect
World, one of the leading gaming developers in China.
Second-quarter sales fell 5% from a year ago to $106 million, which
was slightly below consensus forecasts. Investors must have seen
the shortfall coming asshares had dropped for five straight
sessions before falling another 6% this morning.
Still, this is shaping up to be a heckuva value play: Even after
issuing a one-time $98 milliondividend payment to shareholders in
April 2012, Perfect World still has around $320 million in net
cash, not far from the company's entiremarket value of $460
million. Analysts at Oppenheimer seeearnings per share (
) stagnating at around $2 a share in 2012 and 2013, which implies a
quite-lowforward earnings multiple of around 4.5. Shares may be
dead money in the near-term, but this is a good time to brush up on
the company's long-term growth plans to see whether such low
valuations represent the deep bargain they seem to be.
The end of the Volt?
It's hard not to feel sorry for
. After re-emerging from bankruptcy, it has repeatedly stumbled in
its bid to take back industry leadership. Even the company's
hallmark efforts to be a leading-edge player in the electric car
industry appear to be a bust, as GM just announced that it is
halting production of the Chevy Volt for a month to give dealers
more time to clear outinventory . Considering where this car is in
its product life cycle, sales woes are a likely harbinger of
long-termmarket failure for the Volt.
The Volt's possible premature demise is bad news for Polypore
Int'l, whose shares are sliding almost 10% this morning after
establishing a new52-week low . Polypore provides the membranes
that allow electrons to flow across the Volt's battery
Polypore is also involved in other industries such as health
care and water filtration. Analysts regard the company's membrane
technology as leading-edge, and over the long-haul, Polypore is
well-positioned in several growth verticals. Still, 2012 is shaping
up to be a lost year. Few near-term catalysts exist and you're best
off waiting to see shares really capitulate in any broadermarket
Action to Take -->
While both of these stocks lack catalysts, Perfect World offers
some stunning valuation metrics. That's not a signal to buy, but
now is a good time to study the company's long-term growth plans --
while the entire business, net of cash, is accorded little value.
When it comes to the gaming industry, just one or two hot new
titles can give a stock a fresh sheen.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.