SouFun (SFUN) Stock Rises as Chinese Markets Climb Following Third Interest Rate Cut

NEW YORK (TheStreet) -- Shares of Chinese real estate portal SouFun  (SFUN) rose 5.13% to $7.99 in morning trading Monday as Chinese stocks rallied following the People's Bank of China's third interest rate cut since November.

The Chinese central bank announced Sunday that it would trim its benchmark lending rate and one-year deposit rates by 25 basis points, effective May 11, as economic growth in the world's most populous nation slowed to levels not experienced since the global financial crisis in the late 2000s.

China's Shanghai Composite Index rose 3% in the wake of the news to extend a rally that began on Friday.

The bank made the move after the release of April inflation data and after the Shanghai exchange posted its worst performance since July 2010 last week with a 5.3% drop.

Separately, 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 multiple 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, expanding profit margins, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company has had somewhat weak growth in earnings per share."

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 5.9%. Since the same quarter one year prior, revenues slightly increased by 2.7%. 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 82.22%. Regardless of SFUN's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, SFUN's net profit margin of 37.00% significantly outperformed against the industry.
  • SFUN's debt-to-equity ratio of 0.92 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. Despite the fact that SFUN's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.20 is high and demonstrates strong liquidity.
  • 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.
  • The share price of SOUFUN HLDGS LTD has not done very well: it is down 24.43% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it is one of the factors that makes this stock an attractive investment.
  • You can view the full analysis from the report here: SFUN Ratings Report

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