One Reason Yahoo! (YHOO) Stock Is Trading in the Red

NEW YORK (TheStreet) -- Shares of Yahoo! Inc  (YHOO) were lower by 2.67% to $40.94 in late afternoon trading Thursday, after analysts at Capstone said the spin-off of Alibaba Group Holding (BABA) is unlikely to be approved.

Analysts at the firm believe that the Internal Revenue Service, along with the Treasury Department, will not approve the proposed tax-free spin-off of the company's stake in the Chinese ecommerce retailer.

Capstone added that the tax-free spinoff is already priced into shares.

The unfavorable change in the tax code could hurt the stock. The firm says it could result in more than an $11 per Yahoo share for tax expense on the spin-off transaction.

Sunnyvale, Calif.-based Yahoo! is a global technology company, delivering digital content and experiences, across devices and globally.

The company provides online properties and services to users, as well as a range of marketing services.

Separately, TheStreet Ratings team rates YAHOO INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate YAHOO INC (YHOO) a BUY. This is driven by a few notable 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, largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and solid stock price performance. We feel its 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:

  • YHOO's revenue growth has slightly outpaced the industry average of 5.7%. Since the same quarter one year prior, revenues slightly increased by 8.2%. 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.
  • Although YHOO's debt-to-equity ratio of 0.04 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 4.44, which clearly demonstrates the ability to cover short-term cash needs.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet Software & Services industry and the overall market, YAHOO INC's return on equity exceeds that of both the industry average and the S&P 500.
  • 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. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • You can view the full analysis from the report here: YHOO Ratings Report

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