This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

A Dose of Reality Needed for China Fever

Stocks in this article: DANG RENN YOKU DATE

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

BEIJING ( TheStreet) -- Despite the fact that nothing has fundamentally changed in the China internet space over the past two to three weeks, U.S.-listed China Internet stocks have skyrocketed across the board. Some of the larger benchmark names such as SINA, SOHU and BIDU were clearly oversold at the end of 2011 and have rebounded substantially. However, it should be cause for concern when even the weakest names in the space rip higher along with the major players, even as these weak players are showing deteriorating financials.

Some of the largest gains have been seen for companies with the weakest fundamentals and weakest prospects for profitability. This clearly smacks of an unsustainable short term bubble, much of which has been fueled by short covering. Once the boost from short covering ends, these names could all see quick and substantial drops back to their December levels. Most notable are the mostly misnamed "catch phrase" stocks shown below:

Arguably Renren (RENN) was too cheap at $3.21, a price that valued the entire company only for the cash it had on hand -- over $1.2 billion. RENN could easily build a future through a series of acquisitions and has plenty of cash to do it. But that doesn't change the fact that RENN is simply not the Facebook of China, but rather will likely prove to be the Friendster of China and not last in the long run. The share price certainly reflects this sentiment by investors. In the $4 to $5 range, RENN is probably priced about right, as a cash rich company without strong business prospects going forward.

Follow TheStreet on Twitter and become a fan on Facebook.

At a price of nearly $21, Youku (YOKU) is a $2.4 billion dollar company that has never turned a profit and is seeing losses accelerate. The stock saw a strong run up above $20 heading into its last earnings call and then plunged when it was revealed that costs for content had increased dramatically and losses therefore widened significantly. Now the stock has rebounded again to above $20 without any meaningful developments to drive it higher. YOKU is simply riding the rising tide for China internet stocks. I was previously short YOKU from $21, but covered my position once the stock started to rebound from its lows. If the stock gets back to $23, I will eagerly short it again and hold through the next earnings call.

1 of 3

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs