Among the biggest losers in Monday’s early trading are Perfect World (Nasdaq: PWRD), A123 Systems (Nasdaq: AONE) and Lowe’s (NYSE: LOW).

Another Chinese Gaming Casualty

Perfect World (Nasdaq: PWRD) is slumping more than -20% after the Chinese video game firm predicted that second-quarter sales would be slightly lower on a sequential basis. All of the Chinese gaming stocks are trading well off of their highs, and in most instances, sport very low price-to-earnings ratios (P/E). Part of the sector weakness is attributable to the lumpy nature of growth that these companies are showing. Perfect World, which matched the $0.84 a share first-quarter earnings forecast, is likely to miss the second quarter EPS forecast of $0.86 by 5% or 10%.

Yet investors are being short-sighted, as full-year profits for Perfect World continue to advance at a steady clip. Prior to today’s tepid forward guidance, the company was expected to boost profits around +30% in 2010, (after EPS had grown at least +60% in each of the last three years). Now, profits will likely rise closer to the +20% mark to around $3.30 (the current consensus stands at $3.68). Shares trade at around eight times 2010 profits. In response, management could look to apply some of the company’s $275 million cash balance toward a stock buyback. A buyback is already underway at Perfect World’s rival Shanda Games (Nasdaq: GAME).

Action to Take –> Chinese video game stocks are among the cheapest in the market, and most have very strong balance sheets and still-strong long-term growth rates. Both Perfect World and Shanda Games look very appealing at current levels.

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A Busted IPO

As a private company, A123 Systems (Nasdaq: AONE) could do no wrong. The company inked a bunch of contracts for its battery systems with major global auto makers. As a public company, A123 has seemingly lost its mojo. The company went public last September and has yet to meet quarterly forecasts. Losses appear open-ended for A123, and investors continue to exit the stock, pushing shares down another -5.7% this morning.

#-ad_banner-#You can blame the weakness on unrealistic expectations. A123 Systems was so heavily hyped prior to its IPO that investors lost sight of the fact that this is still a young industry that has yet to reach its potential. Unless the move toward hybrid cars starts to wane, A123 should eventually deliver sustained growth. The company is also targeting the growing smart grid opportunity, as many new power systems will require robust battery storage systems.

Investors need not fear that A123 Systems will blow through its IPO money too fast. The company is burning about $30 million a quarter, and still has more than $400 million in cash. Quarterly losses should shrink as revenues rise further. But this remains a “story stock,” as the company is unlikely to turn a profit before 2012 or 2013. To help shares regain their footing, management will need to reverse the trend of flubbed quarters. And the remainder of this year could represent more growing pains and lumpy results.

Action to Take –> A123 Systems still looks to be the premier domestic supplier of state-of-the-art battery systems. Investors should take advantage of the current poor quarterly execution and move in while others are rushing out. Remember, though, patience is required. A lesson that the company’s initial investors have failed to heed.

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Lowe’s Off of Their Highs

Shares of Lowe’s (NYSE: LOW) are off -4% in Monday trading after the company posted decent first-quarter results before the bell, but issued slightly disappointing full-year guidance. Shares of Lowe’s have risen +50% from their nadir reached during the economic crisis, even as sales have yet to post the robust rebound that many had expected. Full-year revenues are once again expected to fall in the $47 billion to $50 billion range this year, for the fourth straight year. And it’s increasingly clear that the foreclosure crisis continues to cause distress, so it’s unclear that the home-improvement retailer will be able to meet 5% sales growth forecasts for the next fiscal year either (which begins next February).

Action to Take –> Don’t look at today’s sell-off as a buying opportunity. Shares already anticipate further sales and profit gains, which may or may not materialize.