Cramer Stands Corrected: Perfect World Co.

Back in August, a Lightning Round caller asked Cramer about a Chinese video game company called Perfect World that runs massive multiplayer online role playing games. Cramer said it was a sell if he’s ever seen one. Now, he thinks he was wrong.

On Monday’s Mad Money, Cramer stood corrected on Perfect World . Cramer is often skeptical of Chinese stocks because they don’t have stringent securities regulation, making it hard to find reliable financials. Without solid data behind it, a stock is untouchable no matter how tempting it might look, Cramer often says.

But Perfect World does file financials. It also puts up stellar numbers. In fact, the company just had a huge upside surprise, beating consensus earnings estimates by 81% and sales estimates by 43%. That, along with its earnings visibility, makes Perfect World a near-perfect stock for right now, according to Cramer.

Vivendi’s takeover of Activision highlights just how profitable these online role playing games are, too. (Vivendi is the company behind the mother of all role playing games, World of Warcraft.) Basically, players pay a monthly fee to play, which gives the game’s developers recurring cash flow and extremely high operating margins.

None of that means Perfect World isn’t speculative, though. While cheap, Cramer thinks the stock could go lower before it goes higher. But because it only takes the PWRD six months to get a game to market – it takes two years for most other companies – some of the risk is hedged. It also has a catalyst in an upcoming game based on a John Woo film that is the biggest budget Chinese movie in history. Cramer thinks Perfect World should benefit from the marketing there.

Questions, comments, suggestions for the Mad Money website?