500.com (WBAI) Stock Falls After Deutsche Bank Downgrade

NEW YORK (TheStreet) -- Shares of 500.com (WBAI) were falling 10.7% to $21.05 Thursday following a downgrade from Deutsche Bank.

The analyst firm downgraded the Chinese gaming company to "sell" from "hold" in a note to investors. Deutsche Bank raised its price target for the company to $13.80 from $11.

Deutsche Bank analysts Alan Hellawell III and Vivian Hao said "timing of a resumption of online sales remains anyone's guess," according to Barron's. 500.com had to halt its online lottery sales in February when the Chinese government decided to suspend the online sales in order to regulate the industry.

"500.com in the meanwhile is helping the MOF and Sports Administration Center to finish internal system testing and awaits the completion of a range of administrative tasks," the analysts wrote. "We expect some public testing after the Sports Admin Ctr reports to the MOF for approval. While business could resume in 3Q, and while 500 could enjoy preferential status initially, the purpose of planned licensing is to open up the market. Although 500 is a category leader, we feel the current share price envisages potentially overly optimistic assumptions post-moratorium."

Separately, TheStreet Ratings team rates 500.COM LTD -ADR as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate 500.COM LTD -ADR (WBAI) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income and generally disappointing historical performance in the stock itself."

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

  • 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 Hotels, Restaurants & Leisure industry. The net income has significantly decreased by 83.9% when compared to the same quarter one year ago, falling from $14.15 million to $2.28 million.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 41.06%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 86.66% 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 could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.
  • The gross profit margin for 500.COM LTD -ADR is currently very high, coming in at 89.89%. Regardless of WBAI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 9.80% trails the industry average.
  • In comparison to the other companies in the Hotels, Restaurants & Leisure industry and the overall market, 500.COM LTD -ADR's return on equity is significantly below that of the industry average and is below that of the S&P 500.
  • 500.COM LTD -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. 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, 500.COM LTD -ADR increased its bottom line by earning $0.70 versus $0.51 in the prior year. This year, the market expects an improvement in earnings ($1.12 versus $0.70).
  • You can view the full analysis from the report here: WBAI Ratings Report

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