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"I want to know (God's) thoughts, the rest are details."

Albert Einstein

Sina Corporation provides online media and mobile value-added services in China. Sina provides advertising, non-advertising and free services. Its micro blogging platform (weibo.com) allows users to follow the trendiest topics being discussed online. It mobile service (Sina mobile) allows users to receive updated news, download games, participate in dating communities, etc. Some reasons to like Sina:

  • Growth rates are expected to surge from -80% in 2012 to 640% in 2013
  • High estimates for EPS are $0.38 in 2012 to $1.84 in 2013
  • Cash and cash equivalents increased from $384 million in 2009 to $643 million in 2011

Reasons to be bullish on Sina Corp (SINA):

  • A decent free cash flow of $95.7 million
  • Sales increased from $359 million in 2009 to $483 in 2011
  • It has a five-year sales growth rate of 17.5%
  • An excellent long term debt to equity ratio of 0.00
  • A good quarterly revenue growth rate of 21%
  • A high beta of 1.77 which makes it a good candidate for covered writes - selling covered calls can open a second stream of income
  • Gross profits increased from $219 million in 2009 to $234 million in 2011
  • Institutions hold a lofty stake of 86.3%
  • It has a projected EPS growth for the next 3-5 years of 22.9%
  • A good five-year debt/total cap average of 0.16
  • An excellent current and quick ratio of 4.12 respectively
  • A good cash ratio of 3.56
  • A decent free cash flow yield of 8%
  • Cash flow from operating activities increased from $114 million in 2009 to $116.5 million in 2011
  • $100K invested for 10 years would have grown to $943K
  • While Sina is a pretty Good Play we feel that NTES which is covered below probably makes for a better play

Reasons to be cautious on Sina Corp:

  • Net income took a massive hit from $412 million in 2009 to $-302 million in 2011
  • EBITDA dropped from $440 million in 2009 $52.7 million in 2011
  • Cash flow per share dropped from $0.93 in 2009 to $0.69 in 2011
  • Annual EPS before NRI dropped from $1.00 in 2007 to $0.67 in 2011

(Click to enlarge)

Many key ratios will be covered in this article and investors would do well to get handle on some of the more important ones which are dealt with below.

Long-term debt-to-equity ratio is the total long term debt divided by the total equity. The amount of long-term debt a company carries on its balance sheet is very important for it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase, the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital which could in the worst case scenario lead to bankruptcy.

Operating cash flow is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt. The cash flow is what pays the bills.

The payout ratio tells us what portion of the profit is being returned to investors. A payout ratio over 100% indicates that the company is paying out more money to shareholders than they are making. This situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for some time. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever. If your tolerance for risk is low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest - 5 Splendid Dividend Candidates To Mull Over.

Current Ratio is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardizing future earnings. Ideally the company should have a ratio of 1 or higher.

Price to free cash flow is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa. Lower ratios are generally more attractive. If a company generated $400 million in cash flow and then spent $100 million on capital expenditure, then its free flow is $300 million. If the share price is $100 and the free cash flow per share are $5, then company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry. This gives you an idea of how the company you are interested in holds up to the other companies within the industry.

Interest coverage is usually calculated by dividing the earnings before interest and taxes for a period of one year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. For example if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits.

Price to tangible book is obtained by dividing share price by tangible book value per share. The ratio gives investors some idea of whether they are paying too much for what would be left over if the company were to declare bankruptcy immediately. In general stocks that trade at higher price to tangible book value could leave investors facing a great percentage per share loss than those that trade at lower ratios. The price to tangible book value is theoretically the lowest possible price the stock would trade to. Additional key metrics are addressed in this article - 5 Splendid MLP Plays.

Company: Sina Corp

Free Cash Flow = 95.7 million

Basic Key ratios

1. Percentage Held by Insiders = 7.4

Growth

1. Net Income ($mil) 12/2011 = -302

2. Net Income ($mil) 12/2010 = -19

3. Net Income ($mil) 12/2009 = 412

4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -1482.13

5. Quarterly Net Income this Quarterly/same Quarter year ago = 109.28

6. EBITDA ($mil) 12/2010 = 6

7. EBITDA ($mil) 12/2009 = 440

8. Net Income Reported Quarterly ($mil) = 9

9. Annual Net Income this Yr/ Net Income last Yr = -1484.13

10. Cash Flow ($/share) 12/2011 = 0.69

11. Cash Flow ($/share) 12/2010 = 1.92

12. Cash Flow ($/share) 12/2009 = 0.93

13. Sales ($mil) 12/2011 = 483

14. Sales ($mil) 12/2010 = 403

15. Sales ($mil) 12/2009 = 359

16. Annual EPS before NRI 12/2007 = 1

17. Annual EPS before NRI 12/2008 = 1.46

18. Annual EPS before NRI 12/2009 = 0.61

19. Annual EPS before NRI 12/2010 = 1.52

20. Annual EPS before NRI 12/2011 = 0.69

Performance

1. Percentage Change Price 52 Weeks Relative to S&P 500 = -22.9

2. Next 3-5 Year Estimate EPS Growth rate = 27.46

3. EPS Growth Quarterly(1)/Q(-3) = 168.29

4. ROE 5 Year Average 06/2011 = 9.92

5. Return on Investment 06/2011 = 3.63

6. Debt/Total Cap 5 Year Average 06/2011 = 0.16

7. Current Ratio 06/2011 = 4.12

8. Current Ratio 5 Year Average = 3.86

9. Quick Ratio = 4.12

10. Cash Ratio = 3.56

11. Interest Coverage Quarterly = N/A

Valuation

1. Book Value Quarterly = 16.12

2. Price/ Book = 4.63

3. Price/ Cash Flow = 107.44

4. Price/ Sales = 10.18

5. EV/EBITDA 12 Mo = 702.58

Related companies

For investors looking for other ideas some data have been provided on four additional companies to get you started. Related companies data obtained from barchart.com.

Company: Netease.Com-Adr (NTES)

Levered Free Cash Flow = 330.18M

Net Income ($mil) 12/2011 = 512

Net Income ($mil) 12/2010 = 338

Net Income ($mil) 12/2009 = 269

EBITDA ($mil) 12/2011 = N/A

EBITDA ($mil) 12/2010 = 426

EBITDA ($mil) 12/2009 = 336

Cash Flow ($/share) 12/2011 = 4.29

Cash Flow ($/share) 12/2010 = 2.87

Cash Flow ($/share) 12/2009 = 2.26

Sales ($mil) 12/2011 = 1187

Sales ($mil) 12/2010 = 834

Sales ($mil) 12/2009 = 560

Annual EPS before NRI 12/2007 = 1.31

Annual EPS before NRI 12/2008 = 1.72

Annual EPS before NRI 12/2009 = 2.09

Annual EPS before NRI 12/2010 = 2.6

Annual EPS before NRI 12/2011 = 3.92

Current Ratio = 6.34

Quick Ratio = 6.34

Cash Ratio = 6.24

Company: Yandex (YNDX)

Levered Free Cash Flow = 42.50M

Net Income ($mil) 12/2011 = 179

Net Income ($mil) 12/2010 = 126

EBITDA ($mil) 12/2011 = 286

Cash Flow ($/share) 12/2011 = 1.73

Sales ($mil) 12/2011 = 622

Sales ($mil) 12/2010 = 413

Next 3-5 Year Estimate EPS Growth rate = 40.55

Annual EPS before NRI 12/2010 = 0.41

Annual EPS before NRI 12/2011 = 0.57

Return on Investment 06/2011 = 22.08

Current Ratio = 3.08

Quick Ratio = 3.08

Cash Ratio = 2.81

Company: Youku.Com (YOKU)

Levered Free Cash Flow = -66.16M

Net Income ($mil) 12/2011 = -27

Net Income ($mil) 12/2010 = -31

Net Income ($mil) 12/2009 = -27

Quarterly Net Income this Quarterly/same Quarter year ago = -37.96

EBITDA ($mil) 12/2011 = 7

EBITDA ($mil) 12/2010 = -23

Cash Flow ($/share) 12/2011 = 0.08

Sales ($mil) 12/2011 = 143

Sales ($mil) 12/2010 = 59

Sales ($mil) 12/2009 = 22

Annual EPS before NRI 12/2009 = -1.3

Annual EPS before NRI 12/2010 = -0.94

Annual EPS before NRI 12/2011 = -0.25

Current Ratio = 8.96

Quick Ratio = 8.96

Company: TripAdvisor Inc. (TRIP)

Levered Free Cash Flow: $ 112 million

Net income

Net Income 2010 = $ 138 million

Net Income 2011 = $177 million

Total cash flow from operating activities

2010 = $- 196 million

2011 = $ 277 million

Gross Profit

2010 = $ 477 million

2011 = $ 626 million

Quarterly earnings growth 24%

Quarterly revenue growth 29%

5 year sales growth= N/A

Free cash flow per share= $1.47

Current Ratio = 2.00

Quick Ratio = 2.10

Long term debt to equity= 1.29

Interest Coverage = N/A

Conclusion

Even though the markets have pulled back a little bit, they are still extremely overbought and need to let out some steam. Prudent investors would do well to wait for a strong pullback before committing funds to this market. A pullback in the 7-12% range would qualify as a strong pullback.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Source: Sina: A Good Play, But Better Plays Abound

Additional disclosure: EPS, Price, EPS surprise charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com