China online gaming: Perfect World (PWRD)

"In 2006 and 2007 and the first quarter of 2008, Perfect World launched five self-developed 3D massively multiplayer online role playing games, or MMORPGs, namely, Perfect World, Legend of Martial Arts, Perfect World II, Zhu Xian, and Chi Bi and its first online casual game, Hot Dance Party.

"In the first quarter of 2008, these games recorded approximately 660,000 average concurrent users in China.

"Perfect World plans to develop more online games, including two-dimensional, or 2D, games, with a variety of themes, cultural characteristics, and features that appeal to different segments of the online game player community.

"I am amazed at the popularity of online role-playing games. The millions of gamers represent virtually every country in the world that has Internet access.

"With so many dedicated gamers, it is easy to see how revenue can soar into the billions of dollars for just one game. The online game that is all the craze in China is Perfect World.

"Online games remain a booming niche in the world's most populous country, with China's youth gravitating toward immersive multiplayer experiences online. If we do see an economic recovery, this is a stock that looks poised to double as earnings in this company are rapidly growing.

"According to my numbers, PWRD should be selling in the low $40s over the next three to five years. It is currently trading in the low $20s, so PWRD has large upside potential.

"We recommend that investors who buy the stock place a sell stop at 25% below their entry price. As the stock rises, continue to raise your stop so that you are trailing the Friday close by 25%."

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