SouFun (SFUN) Stock Gains on Higher Shanghai Composite Index

NEW YORK (TheStreet) -- Shares of SouFun (SFUN) were gaining 2.5% to $8.33 Tuesday after the Shanghai Composite Index rose 5.6% after a volatile session.

The increase comes after several days of losses for the largest index in China, according to CNBC. The Shenzen Composite Index also gained 4.8% Tuesday after several days of similar losses.

"Talk of putting a halt to the initial public offering (IPO) process helped spur some buying and it will certainly help mitigate the prospect of traders selling existing stock holdings to take part in the IPO process," IG Chief Market Strategist Chris Weston said in a note to investors.

Weston continues, "There has also been talk of using the country's endowment fund to buy equities, as well as cutting stamp duty, while the central bank has further cut the seven-day repo rate by 20 basis points to 2.5%."

The higher Chinese composite indexes helped bring up shares of China-based companies such as SouFun.

SouFun is a Chinese online real estate portal. The company also operates home furnishing and improvement websites.

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 a number of 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 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 1.8%. 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 rather high; currently it is at 67.15%. 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 4.94% is significantly lower than the industry average.
  • 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 debt-to-equity ratio of 1.05 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 2.05, which demonstrates the ability to cover short-term cash needs.
  • In its most recent trading session, SFUN has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Looking ahead, although the push and pull of the overall market trend could certainly make a critical difference, we do not see any strong reason stemming from the company's fundamentals that would cause a continuation of last year's decline. In fact, the stock is now selling for less than others in its industry in relation to its current earnings.
  • You can view the full analysis from the report here: SFUN Ratings Report

More from Markets

Facebook Prepares for Earnings and 4 Other Stories You Must Know Wednesday

Facebook Prepares for Earnings and 4 Other Stories You Must Know Wednesday

Facebook's Investors Have a Big Day Ahead

Facebook's Investors Have a Big Day Ahead

Facebook, Boeing, Shire and Credit Suisse - 5 Things You Must Know

Facebook, Boeing, Shire and Credit Suisse - 5 Things You Must Know

The Global Stock Market Rout Spreads Across the World

The Global Stock Market Rout Spreads Across the World

Comcast Details $30 Billion Bid for Britain's Sky in Takeover Battle With Fox

Comcast Details $30 Billion Bid for Britain's Sky in Takeover Battle With Fox