3 Stocks Pushing The Internet Industry Lower

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.

The Internet industry as a whole closed the day up 0.3% versus the S&P 500, which was up 0.7%. Laggards within the Internet industry included SMTP ( SMTP), down 2.2%, Local ( LOCM), down 3.2%, eLong ( LONG), down 1.9%, Jiayuan.com International ( DATE), down 2.5% and Internap Network Services ( INAP), down 1.6%.

TheStreet Ratings Group would like to highlight 3 stocks that pushed the industry lower today:

eLong ( LONG) is one of the companies that pushed the Internet industry lower today. eLong was down $0.38 (1.9%) to $19.44 on light volume. Throughout the day, 11,289 shares of eLong exchanged hands as compared to its average daily volume of 24,700 shares. The stock ranged in price between $19.05-$19.99 after having opened the day at $19.66 as compared to the previous trading day's close of $19.82.

eLong, Inc. operates as an online travel service provider in the People's Republic of China. eLong has a market cap of $704.0 million and is part of the services sector. Shares are down 2.4% year-to-date as of the close of trading on Thursday. Currently there is 1 analyst who rates eLong a buy, no analysts rate it a sell, and none rate it a hold.

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TheStreet Ratings rates eLong 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 disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from TheStreet Ratings analysis on LONG go as follows:

  • The revenue growth came in higher than the industry average of 9.6%. Since the same quarter one year prior, revenues rose by 22.3%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • LONG 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 3.21, which clearly demonstrates the ability to cover short-term cash needs.
  • ELONG INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ELONG INC reported poor results of -$0.80 versus $0.00 in the prior year. This year, the market expects an improvement in earnings ($0.35 versus -$0.80).
  • LONG has underperformed the S&P 500 Index, declining 12.53% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating 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 & Catalog Retail industry and the overall market, ELONG INC's return on equity significantly trails that of both the industry average and the S&P 500.

You can view the full analysis from the report here: eLong Ratings Report

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At the close, Local ( LOCM) was down $0.06 (3.2%) to $1.82 on light volume. Throughout the day, 11,372 shares of Local exchanged hands as compared to its average daily volume of 77,300 shares. The stock ranged in price between $1.82-$1.91 after having opened the day at $1.88 as compared to the previous trading day's close of $1.88.

Local Corporation, a technology and advertising company, provides search results to consumers who search online for local businesses, products, and services in the United States. The company operates in two segments, Paid Search and Daily Deals. Local has a market cap of $44.6 million and is part of the services sector. Shares are up 21.5% year-to-date as of the close of trading on Thursday. Currently there are 2 analysts who rate Local a buy, no analysts rate it a sell, and none rate it a hold.

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TheStreet Ratings rates Local as a sell. Among the areas we feel are negative, one of the most important has been poor profit margins.

Highlights from TheStreet Ratings analysis on LOCM go as follows:

  • The gross profit margin for LOCAL CORP is currently lower than what is desirable, coming in at 30.76%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -5.90% is significantly below that of the industry average.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Internet Software & Services industry and the overall market, LOCAL CORP's return on equity significantly trails that of both the industry average and the S&P 500.
  • In its most recent trading session, LOCM has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. 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.
  • LOCM, with its decline in revenue, underperformed when compared the industry average of 28.1%. Since the same quarter one year prior, revenues slightly dropped by 0.6%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • LOCM's debt-to-equity ratio of 0.82 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. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 0.75 is weak.

You can view the full analysis from the report here: Local Ratings Report

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SMTP ( SMTP) was another company that pushed the Internet industry lower today. SMTP was down $0.14 (2.2%) to $6.17 on average volume. Throughout the day, 12,033 shares of SMTP exchanged hands as compared to its average daily volume of 13,600 shares. The stock ranged in price between $6.13-$6.39 after having opened the day at $6.28 as compared to the previous trading day's close of $6.31.

SMTP, Inc. provides Internet-based services to facilitate email delivery worldwide. It offers services to enable businesses of various scales to outsource the sending of outbound emails. SMTP has a market cap of $32.0 million and is part of the services sector. Shares are up 341.3% year-to-date as of the close of trading on Thursday. Currently there is 1 analyst who rates SMTP a buy, no analysts rate it a sell, and none rate it a hold.

TheStreet Ratings rates SMTP as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, solid stock price performance and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income.

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Highlights from TheStreet Ratings analysis on SMTP go as follows:

  • SMTP's revenue growth trails the industry average of 28.1%. Since the same quarter one year prior, revenues slightly increased by 6.1%. 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.
  • SMTP 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 23.62, which clearly demonstrates the ability to cover short-term cash needs.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • SMTP INC 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. This company has not demonstrated a clear trend in earnings over the past 2 years, making it difficult to accurately predict earnings for the coming year. During the past fiscal year, SMTP INC increased its bottom line by earning $0.42 versus $0.35 in the prior year.

You can view the full analysis from the report here: SMTP Ratings Report

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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