Is SINA A Buy?

With shares of SINA (NASDAQ:SINA) trading around $46 is SINA an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

SINA is an online media company serving China and the global Chinese communities. The company’s digital media network of SINA.com, SINA.cn and Weibo.com, enable Internet users to access professional media and user generated content in multi-media formats from the web and mobile devices and share their interests to friends and acquaintances. SINA.com offers distinct and targeted professional content on each of its region specific websites and a range of complementary offerings. SINA.cn provides information and entertainment content from SINA portal customized for wireless device users. It generates its revenues from online brand advertising and fee-based services. As consumers are eager to become more connected to the social world, companies like SINA stand to make increasing profits through its networks well into the future.

T = Technicals on the Stock Chart are Weak

SINA stock has been range bound over the last several years, minus the pop and drop that occurred in late 2009 and early 2010. The stock is currently a critical price level, any hold and solid move higher would be very positive for the stock. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, SINA is trading below its key averages which signal neutral to bearish price action in the near-term.

SINA

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(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of SINA options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

SINA Options

55.89%

80%

82%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Steep

Average

June Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bearish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on SINA’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for SINA look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-102.75%

226.67%

-191.30%

105.19%

Revenue Growth (Y-O-Y)

16.95%

10.63%

6%

21.30%

Earnings Reaction

5.36%

-15.12%

10.39%

11.08%

SINA has seen increasing revenue figures over the last four quarters. From these figures, the markets have generally been satisfied with SINA’s recent earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has SINA stock done relative to its peers, NetEase (NASDAQ:NTES), Sohu (NASDAQ:SOHU), Yahoo! (NASDAQ:YHOO), and sector?

SINA

NetEase

Sohu

Yahoo!

Sector

Year-to-Date Return

-7.07%

22.88%

3.08%

19.95%

5.95%

SINA has been a relative underperformer, year-to-date.

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Conclusion

SINA provides online information, social, and multimedia content to a growing user base in China. The stock has been trading a range for most of the past several years. Currently, SINA stock is at a critical price level well a solid break higher or lower from these prices can dictate the path of future stock prices. Investors have been generally pleased as revenue is steadily increasing while earnings have been mixed. However, SINA has trailed its peers and sector in relative year-to-date performance. WAIT AND SEE what SINA does this coming quarter.

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