China-Based Net Stocks Rebound... And Then Some

NEW YORK (TheStreet) -- After days of share losses, China-based net stocks are rebounding over Tuesday's session.

By midday, social platform YY Inc. (YY) led the gains, jumping 12.2% to $63.93, while internet gaming developer Changyou.Com (CYOU) has spiked 6% to $31.03.

Search engine Baidu (BIDU) added 3.5% to $164.20, social network Sina Corporation (SINA) was up 3.5% to $72.41, and online anti-virus provider Qihoo 360 Technology (QIHU) jumped 5% to $94.49.

YY Chart YY data by YCharts

Shares turned sharply lower on Thursday after Securities and Exchange Commission Administrative Law Judge Cameron Elliot ruled Chinese units of accounting firms KPMG, Deloitte & Touche, PricewaterhouseCoopers and Ernst and Young were barred from auditing U.S.-listed companies for six months. The ruling was in connection to the firms' violation of the Sarbanes-Oxley Act after deliberately failing to provide audit papers for Chinese companies investigated for accounting fraud. The firms said they plan to file an appeal against the ruling.

On Monday, high-momentum internet stocks tumbled as investors took profits on fears of emerging markets weakness. As it stands, stocks in the developing world are off to their worst year since 2009.

TheStreet Ratings team rates YY INC -ADR as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate YY INC -ADR (YY) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, notable return on equity and robust revenue growth. However, as a counter to these strengths, we find that the company's profit margins have been poor overall."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Powered by its strong earnings growth of 227.27% and other important driving factors, this stock has surged by 379.47% over the past year, outperforming the rise in the S&P 500 Index during the same period.
  • Compared to other companies in the Internet Software & Services industry and the overall market, YY INC -ADR's return on equity exceeds that of both the industry average and the S&P 500.
  • YY has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.59, which clearly demonstrates the ability to cover short-term cash needs.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet Software & Services industry. The net income increased by 275.9% when compared to the same quarter one year prior, rising from $5.63 million to $21.15 million.
  • 49.00% is the gross profit margin for YY INC -ADR which we consider to be strong. Regardless of YY's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, YY's net profit margin of 26.45% compares favorably to the industry average.

TheStreet Ratings team rates CHANGYOU.COM LTD as a Buy with a ratings score of B-. The team has this to say about their recommendation:

"We rate CHANGYOU.COM LTD (CYOU) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 12.0%. Since the same quarter one year prior, revenues rose by 10.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The gross profit margin for CHANGYOU.COM LTD is currently very high, coming in at 83.54%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 39.78% significantly outperformed against the industry average.
  • Despite currently having a low debt-to-equity ratio of 0.42, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that CYOU's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.63 is high and demonstrates strong liquidity.
  • CHANGYOU.COM LTD reported flat earnings per share in the most recent quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CHANGYOU.COM LTD increased its bottom line by earning $5.29 versus $4.61 in the prior year. For the next year, the market is expecting a contraction of 12.8% in earnings ($4.62 versus $5.29).

TheStreet Ratings team rates BAIDU INC as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate BAIDU INC (BIDU) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, growth in earnings per share, expanding profit margins and largely solid financial position with reasonable debt levels by most measures. Although the company may harbor some minor weaknesses, we feel they are unlikely to have a significant impact on results."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 9.2%. Since the same quarter one year prior, revenues rose by 44.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 51.04% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, BIDU should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • BAIDU INC's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, BAIDU INC increased its bottom line by earning $4.78 versus $3.02 in the prior year. This year, the market expects an improvement in earnings ($30.36 versus $4.78).
  • The gross profit margin for BAIDU INC is rather high; currently it is at 69.53%. Regardless of BIDU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, BIDU's net profit margin of 34.28% significantly outperformed against the industry.
  • Despite currently having a low debt-to-equity ratio of 0.51, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 5.37 is very high and demonstrates very strong liquidity.

TheStreet Ratings team rates SINA CORP as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate SINA CORP (SINA) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and growth in earnings per share. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 9.2%. Since the same quarter one year prior, revenues rose by 21.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • SINA has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 4.02, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for SINA CORP is rather high; currently it is at 63.82%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 13.74% trails the industry average.
  • The strong earnings growth this company has enjoyed -- up -- has apparently played a role in driving up its share price by a solid 25.88%. In addition, the rise in the general market has likely contributed to this stock's strong performance during this past year.Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, SINA CORP's return on equity significantly trails that of both the industry average and the S&P 500.

TheStreet Ratings team rates QIHOO 360 TECHNOLGY CO -ADR as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate QIHOO 360 TECHNOLGY CO -ADR (QIHU) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that the company's profit margins have been poor overall."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • QIHU's very impressive revenue growth greatly exceeded the industry average of 9.2%. Since the same quarter one year prior, revenues leaped by 123.6%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • QIHOO 360 TECHNOLGY CO -ADR reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, QIHOO 360 TECHNOLGY CO -ADR increased its bottom line by earning $0.40 versus $0.12 in the prior year. This year, the market expects an improvement in earnings ($1.44 versus $0.40).
  • Powered by its strong earnings growth of 209.09% and other important driving factors, this stock has surged by 185.22% over the past year, outperforming the rise in the S&P 500 Index during the same period. Setting our sights on the months ahead, however, we feel that the stock's sharp appreciation over the last year has driven it to a price level which is now relatively expensive compared to the rest of its industry. The implication is that its reduced upside potential is not good enough to warrant further investment at this time.
  • QIHU's debt-to-equity ratio of 0.94 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 5.97 is very high and demonstrates very strong liquidity.
  • The gross profit margin for QIHOO 360 TECHNOLGY CO -ADR is currently very high, coming in at 92.25%. Regardless of QIHU's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, QIHU's net profit margin of 23.65% compares favorably to the industry average.

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