Roof Leaker To Watch: Sohu.com (SOHU)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Sohu.com ( SOHU) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Sohu.com as such a stock due to the following factors:

  • SOHU has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $50.7 million.
  • SOHU has traded 755,465 shares today.
  • SOHU is trading at 17.06 times the normal volume for the stock at this time of day.
  • SOHU crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on SOHU:

Sohu.com Inc. provides online media, search, gaming, community, and mobile services in the People's Republic of China. SOHU has a PE ratio of 160.0. Currently there are 2 analysts that rate Sohu.com a buy, no analysts rate it a sell, and 5 rate it a hold.

The average volume for Sohu.com has been 762,200 shares per day over the past 30 days. Sohu.com has a market cap of $2.7 billion and is part of the technology sector and internet industry. The stock has a beta of 2.21 and a short float of 13% with 3.83 days to cover. Shares are down 1.9% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Sohu.com as a hold. 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 expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 16.7%. Since the same quarter one year prior, revenues rose by 29.1%. 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.
  • Although SOHU's debt-to-equity ratio of 0.27 is very low, it is currently higher than that of the industry average. To add to this, SOHU has a quick ratio of 1.84, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The gross profit margin for SOHU.COM INC is currently very high, coming in at 75.50%. 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 -17.42% is in-line with the industry average.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Internet Software & Services industry and the overall market, SOHU.COM INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • Net operating cash flow has decreased to $123.66 million or 14.25% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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