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KongZhong Up 17%. Will it last?

(1 - user rating)
KongZhong Up 17%. Will it last?

March 17, 2010 (Chinavestor) Shares of Chinese small cap company, KongZhong Corp. (NASDAQ:KONG) jumped 17% on Wednesday following a better-than-expected earnings announcement. Sharp eyed investors caught the surge in volume, not only at the open but at 11:50 A.M. - 12:00 P.M. This latter one was a sell-off saying no more surge, Mr. KongZhong.

Our approach at Chinavestor has been this: let's take a look at current developments from a distance. This helps us to lower the noise.

As the following chart reveals, while latest results came above estimates, revenues and earnings actually fell from previous quarter. Strong guidance makes up for some of the weakness but investors have to ask themselves if promised or proposed numbers are reliable enough. One thing is for sure: the yellow line - price chart -is out of sync with revenue and earnings growth. Now, two scenarios exist. Either KongZhong Corp. (NASDAQ:KONG) has been overpriced since June 2010, explaining why the yellow line stayed above the red earnings growth. If this is the case than current jump is not justified.

Or the price of the stock should be back to where it was earlier in 2009 or just slightly below, based on slightly lower earnings. It's you investor who is to judge.

 

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Review: NetEase and the Competition

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