By Richard Rittorno
As we head into the year’s end many traders look to close weak non-performing positions and look to replace them and start fresh in the New Year. Setting our screens to search for value stocks that have the potential to outperform in 2012, Russian internet company Yandex (NASDAQ:YNDX) pops up.
Yandex provides Internet services throughout the Russian Federation and beyond. The company operates a search engine under the URL of www.yandex.ru. Yandex also offers specialized search, personalized and location-based services — including access to news, weather, road traffic reports, personal email and television and movie schedules.
Revenues are generated through online advertising, display advertising and advertising through third-party advertising carriers. In addition to its headquarters in Moscow, the company runs offices in St. Petersburg, Yekaterinburg, Novosibirsk, Kazan, Odessa, Simferopol, Kiev and in Palo Alto, California. Yandex is also growing via acquiring key assets, with its latest acquisition of SPB Software taking place in November.
Overall Valuation: YNDX falls into the business services industry the use of PEG and P/E ratios are the most appropriate valuation measures. We do not use the price-to-book ratio since it likely underestimates this technology-rich company’s book value by overlooking hidden assets such as intellectual property, and given positive earnings, the price-to-sales ratio is not as meaningful. Therefore YNDX seems inexpensive with a PEG value of 1.0604, slightly below the business services industry median of 1.14, although the PE of 36.8319 is among the highest in the industry.
Profitability: Based on gross margin, operating margin and net margin, YNDX converts a larger percentage of its revenues to profits than most other companies in the sector. Operating margin is a solid 35.21%.
Yield/Dividend: YNDX does not currently offer a dividend.
Wall Street Opinion: Seven out 13 of the analysts who cover this YNDX have a buy on the stock while five have holds and only one has a sell on the stock, providing room for a possible upgrade. The average analyst’s price target is set at $36.
Quick rundown on technicals:
YNDX is hovering 28% below its IPO price of $25, hitting a low of $16.60 on Monday. The last two days have been very encouraging as yesterday’s price action produced a bullish engulfing candle stick at the Fibonacci -1.618 extension with price action today pushing up against the T3 Tilson.
The relative strength indicator also appears to moving off the bottom.
Traders can look for a break above the trend line for confirmation of a reversal but should remain vigilant since YNDX is still young in its trading history, making it difficult to rely solely on technical analysis.
Trade may want to limit and define risk in this security by using a deep in-the-money option to reap any upside and limit the risk of the downside.
It is also important to note that the stock as well as the options are thinly traded, but there currently appears to be some interest around the $25 call strike.