Renren (RENN) Showing Signs Of Perilous Reversal Today

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 Renren ( RENN) as a "perilous reversal" (up big yesterday but down big today) candidate. In addition to specific proprietary factors, Trade-Ideas identified Renren as such a stock due to the following factors:

  • RENN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $16.6 million.
  • RENN has traded 350,569 shares today.
  • RENN is down 6.9% today.
  • RENN was up 22.6% yesterday.

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More details on RENN:

Renren Inc. operates a social networking Internet platform in the People's Republic of China. Currently there are no analysts that rate Renren a buy, 3 analysts rate it a sell, and 5 rate it a hold.

The average volume for Renren has been 1.9 million shares per day over the past 30 days. Renren has a market cap of $1.4 billion and is part of the services sector and leisure industry. Shares are up 16.7% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Renren as a sell. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income and disappointing return on equity.

Highlights from the ratings report include:
  • RENREN INC -ADR has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, RENREN INC -ADR swung to a loss, reporting -$0.19 versus $0.11 in the prior year. For the next year, the market is expecting a contraction of 21.1% in earnings (-$0.23 versus -$0.19).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Internet Software & Services industry. The net income has significantly decreased by 60.0% when compared to the same quarter one year ago, falling from -$15.40 million to -$24.63 million.
  • 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, RENREN INC -ADR's return on equity significantly trails that of both the industry average and the S&P 500.
  • RENN, with its decline in revenue, underperformed when compared the industry average of 16.5%. Since the same quarter one year prior, revenues slightly dropped by 5.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • Compared to where it was a year ago, the stock is now trading at a higher level, and has traded in line with the S&P 500. Turning our attention to the future direction of the stock, we do not believe this stock offers ample reward opportunity to compensate for the risks, despite the fact that it rose over the past year.

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