Qihoo 360 Technology Co. Ltd (NYSE:QIHU) is a leading Chinese Internet platform company that boasts a popular web browser and a budding search engine. A favorite growth pick for many investors already, shares of Qihoo 360 shot up nearly 10 percent on December 3, hitting a new 52-week high of $28.16 per share.
With shares now trading around $27.44, is QIHU an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
Qihoo built its base on Internet and mobile security software (360 Safeguard) and made its name with its browser (360 Secure Browser or 360SE). But perhaps the most interesting and increasingly significant product on the table is the company’s recently-released search engine.
Ditching Google (NASDAQ:GOOG) for a home-grown solution, Qihoo’s search engine reportedly grabbed the second-place spot in the market within five days. The first-place spot belongs to Qihoo’s major competitor Baidu, Inc. (NASDAQ:BIDU), which primarily operates in Internet search services. Baidu claimed as much as 78.6 percent of the first-quarter 2012 search-engine market by revenue. Google, which officially exited the search-engine game in China two years ago, still pulled about 16 percent share in the quarter.
Credit for the success of Qihoo’s search engine so far can be given to its popular browser, which uses the search engine by default. In September 2012, Qihoo reported 303 million monthly active users for its 360 browser, a 28.9 percent year-over-year increase. It is the second-most popular browser in China, losing to Microsoft’s (NASDAQ:MSFT) Internet Explorer. At its current growth rate it could be the number one browser within just one to two years.
E = Equity to Debt Ratio is as Close to Zero as it Gets
Qihoo’s debt-to-equity ratio is within a rounding error of zero. This compares favorably to Baidu with a debt-to-equity ratio of 0.10 as well as to the absolute underdog in the Chinese search market Sohu.com (NASDAQ:SOHU), which has a debt-to-equity ratio of 0.20.
It’s also important to consider total debt and total cash on hand, which for Qihoo is $348.2 million in total cash and no debt. Baidu has a much larger war chest of $3.4 billion (as well as $1.5 billion that was recently raised in a dirt-cheap bond offering — keep a look out for a potential acquisition) and $460.15 million in debt.
For its part, Soho has $894.25 million in total cash and $222.35 million in debt…