Perilous Reversal Watch: SouFun Holdings (SFUN)

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.

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

  • SFUN has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $60.8 million.
  • SFUN has traded 329,203 shares today.
  • SFUN is down 6.2% today.
  • SFUN was up 6.1% yesterday.

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More details on SFUN:

SouFun Holdings Limited operates a real estate Internet portal, and home furnishing and improvement Websites in the People's Republic of China. The stock currently has a dividend yield of 4.8%. SFUN has a PE ratio of 2.5. Currently there are 4 analysts that rate SouFun Holdings a buy, no analysts rate it a sell, and 1 rates it a hold.

The average volume for SouFun Holdings has been 9.4 million shares per day over the past 30 days. SouFun has a market cap of $3.3 billion and is part of the technology sector and internet industry. Shares are up 7.6% year-to-date as of the close of trading on Friday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates SouFun Holdings as a buy. 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 ratings report include:
  • 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.

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