One Reason SouFun (SFUN) Stock Is Down Today

NEW YORK (TheStreet) -- Shares of SouFun (SFUN) were falling 5% to $8 Tuesday after the Chinese online real estate portal announced the termination of its strategic cooperation agreement with Century 21 China (CTC) .

The company said the strategic cooperation agreement was terminated in accordance with their terms. Under the agreement Century 21 China had to obtain all third party consent within 60 days of signing the agreement, which it failed to do in time.

SouFun and Century 21 China first signed the strategic cooperation agreement on Oct. 7, 2014.

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Under the agreement the two companies would have formed "a mutually preferred strategic partnership across their business lines, including advertising, e-commerce, listings services, internet and real estate financing, and secondary and primary brokerage service." Century 21 China would have also issues new shares of SouFun and issue a convertible bond to the online real estate company.

TheStreet Ratings team rates SOUFUN HLDGS LTD as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate SOUFUN HLDGS LTD (SFUN) a BUY. This is driven by some important positives, 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, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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

  • SFUN's revenue growth trails the industry average of 28.1%. Since the same quarter one year prior, revenues slightly increased by 3.0%. 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 SOUFUN HLDGS LTD is currently very high, coming in at 75.88%. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, SFUN's net profit margin of 32.01% significantly outperformed against the industry.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, SOUFUN HLDGS LTD's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • SOUFUN HLDGS LTD's earnings per share declined by 42.6% in the most recent quarter compared to the same quarter a year ago. 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, SOUFUN HLDGS LTD increased its bottom line by earning $0.71 versus $0.37 in the prior year. For the next year, the market is expecting a contraction of 22.6% in earnings ($0.55 versus $0.71).
  • The debt-to-equity ratio of 1.06 is relatively high when compared with the industry average, suggesting a need for better debt level management. Regardless of the company's weak debt-to-equity ratio, SFUN has managed to keep a strong quick ratio of 2.18, which demonstrates the ability to cover short-term cash needs.
  • You can view the full analysis from the report here: SFUN Ratings Report

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