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Earning quality of Chinese IPOs

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What is earning quality?
As a new investor, I used to look at earning of a company heavily. I think earning is also the driver of a stock price in the wall street. If a company issues earning report which beats the street, and offers upbeat outlook for next quarter (or next year), the street will bid up the stock, vice versa. But there is two problems when we solely focus on earnings. For one, growth company, especially IPOs like Google and Salesforce in 2004, and Baidu in 2005 may not be profitable. Or if they are profitable, they don’t make too much monney thus its PE ratio is usually high.

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Scary times

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The wall street had another big down day today. The Dow lost 360 points, or 2.64%. If Dow is not a reliable indicator of market, S&P 500 lost 44.65, or 2.94%. This is after last Thursday big sell off. The obvious reason, is the continuing deteriating of the US credit market (mortgage banks, commerical banks, investor banks); and the weakening of dolloar.

Chinese IPOs such as Agria (NYSE:GRO) can not come to US at worse time, following last week’s Giant Interactive (NYSE:GA). Long term, this may presents oppertunities, if we can differentiate good companies from pretenders. As I recall, when Shanda Interactive (SNDA) came to Nasdaq in Spring 2004, the market was also not doing well. Later on when market recovered, and more importantly, Shanda delivered a few good quarters, its stock price sky rocketed. Similar things can be said for Google (GOOG) and MasterCard (MA) IPO in August 2004, and May 2006, respectively.

In a day like this, it’s better to turn off the monitor. But if we have to work before computer (as most of us do for a living), I found Wang Shi’s blog to be fun. Nice pictures…