NEP: "how all china stocks reacted after minor disappointments on their Q3 numbers"
With each stock going into earnings, I look at it as a magnitude/probability of risk/benefit to decide if I will hold or sell:
If the short term downside potential EPS swing after earnings are released (and here I'm talking either TTM EPS or EPS for just the one quarter if it represents something that really is based on an underlying problem) is <=10% of what profits would be if I sold, then the capital gains implications are 10 percent (25% short term vs. 15% short term) and it's not an advantage to sell.
With NEP, it is highly doubtful whether a single quarter of lower revenue by 10-15 percent would not be followed soon afterwards by a rebound in EPS and PPS in subsequent quarters because of 6 reasons:
(1) NEP's business has 2 divisions and the drilling subsidiary's new revenues should increase within the next quarter or two and add to net income to offset possible slightly lowered revenues from short term oilfield depreciation (but not necessarily permanently fix the problem with eventual long term depreciation);
(2) Crude oil had a higher barrel price after September 30, which adds (in a manner of diminishing returns) to per barrel profits from production in the quarter ending 12/31/10;
(3) The other factor is that NEP has exclusive contracts with government and the government really wants high production now due to shortages, so government is likely to continue to want to get every barrel of production they can out of NEP and continue to execute new contracts, which gives investors confidence about continuing customer demand;
(4) Investors find that all other oil exploration and production companies within mainland China are state-owned. AFAIK, NEP is the only privately owned oil exploration & production small cap company within China, which makes it very attractive to investors.
(5) With a sexy P/E in the low 4s being largely a temporary after-effect of lower investor confidence levels caused by problems that have been fixed (accounting issues corrected, a new auditor, and trading resumed), this represents the absolutely most undervalued oil stock in China. That alone makes NEP a trader's dream because when momentum kicks in, this has a lot of upwards headroom for PPS appreciation.
(6) Last but not least, the impact from perceptions of value related to impacts on GAAP EPS from changes in fair value of warrants, while not a problem for any long term investor, have been a problem for other stocks because short term investors who do not understand warrants see only the GAAP earnings not the non-GAAP earnings as the driver of valuation. The point here is that NEP has very few outstanding warrants and the impact from 06/30 to 09/30 from changes in fair value is going to be very small, around $1.8M, which is based on going from $5.50 PPS to $6.08 PPS over the two quarters. Trivial compared to net income for QoQ.
In conclusion, the decision to buy/hold/sell NEP before earnings is based on risk tolerance in the very short term but most investors would think in the medium term outlook any dips would rebound back quite rapidly for the reasons (1) to (5) noted above. And of course the amount of unrealized profits each investor has in NEP going into earnings is the other factor that balances tax loss impacts from short term selling versus longer term hold.
My position: Hold
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