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When it doesn't make sense

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question_3 November 10, 2010 (Chinavestor) China stock investors are increasingly upset about certain developments lately. One of them is that strong earnings are no guarantee for a stock appreciation - such is the case with Ctrip.com International (NASDAQ:CTRP) and Wonder Auto Technologies (NASDAQ:WATG). Also, the price asymmetry between Shanda Interactive (NASDAQ:SNDA) and Shanda Games (NASDAQ:GAME) yesterday is absolutely odd. And finally, the price asymmetry between Sohu.com Inc. (NASDAQ:SOHU) and Changyou.com (NASDAQ:CYOU) after reporting earnings earlier in October is another market inefficiency.

Wonder Auto Technologies (NASDAQ:WATG) reported better-than-expected financials and issued a bullish guidance on Tuesday yet the stock tumbled 12.1%. One inquiry we received tells it all:

"What happened to WATG? What did they say or imply wrong? Every part looked great to me".

WATG_2010Q3_revearnings

We noticed that the stock made a tremendous run-up before the earnings announcement, making the stock the most overbought one among Chinese ADRs. It looks to me that Tuesday was the day to take profits for many, not believing in the long term story. Negative market sentiment didn't bode well either for bulls, another factor to consider.

But nonsense trading wasn't limited to China autos. Ctrip.com International (NASDAQ:CTRP), the largest Chinese online travel agency, reported excellent financials yet experienced a heavy sell-off...

CTRP_2010Q3_revearnings


Another development raising eyebrows was the superb performance of Shanda Interactive (NASDAQ:SNDA) on Tuesday while its online game unit Shanda Games (NASDAQ:GAME), heart and soul of  Shanda Interactive (NASDAQ:SNDA) fell!!! Think about it. Shanda Games (NASDAQ:GAME) derives over 70% of revenues and earnings for Shanda Interactive (NASDAQ:SNDA). If Shanda Games (NASDAQ:GAME) is in trouble, so will be its former parent company. These two should be trading in tandem, my gut feeling suggests.

Shanda Games (NASDAQ:GAME) and Shanda Interactive (NASDAQ:SNDA), Nov. 3-9, 2010

SNDA_GAME_20101110


Similarly to the Shandas, the price asymmetry between Changyou.com (NASDAQ:CYOU) and Sohu.com Inc. (NASDAQ:SOHU) is striking. Both companies reported third quarter financials the same time and a yawning gap in excess of 18% has developed between their stock prices.

Changyou.com (NASDAQ:CYOU) and Sohu.com Inc. (NASDAQ:SPOHU), Oct. 25-Nov. 9, 2010

SOHU_CYOU_20101110

The reason why this just doesn't make sense it this. Changyou.com (NASDAQ:CYOU) remains the profit center for Sohu.com Inc. (NASDAQ:SOHU), deriving the most revenue and profit for its former parent. Changyou.com (NASDAQ:CYOU) delivered most of the growth as well, far more than online advertising did. All said, it looks to me that Changyou.com (NASDAQ:CYOU) is not only the largest revenue and earnings contributor to Sohu.com (NASDAQ:SOHU) but will remain that way in the near future. Then why the price asymmetry? Value investors may appreciate this: Sohu.com Inc. (NASDAQ:SOHU) is trading at a healthy 22 times earnings while PE for Changyou.com (NASDAQ:CYOU) is just above 5. Huge trading opportunity, right here.



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