Will Sohu Rally to $150?

Sohu (SOHU) is a leading Internet portal in China (similar to Yahoo (YHOO)). They also havevery popular online games that helped them report huge earnings two weeks ago (see conference call transcript). Revenues surged 156% and earnings exploded by 256% last quarter. They have beat analysts estimates by an increasing percentage each of the last 4 quarters (I can’t remember ever seeing that). The trend is that they have beat estimates by 15%, 19%, 25% and 48% over the last 4 quarters.

This indicates that analysts still do not have a full understanding of how fast they are growing.

SOHU is the official online sponsor of the 2008 Olympics in Beijing. This could become the next Baidu (BIDU) type stock ($90 to $300 in 6 months) - at least that is what is starting to crystallize in my head.

What I like is about SOHU is that it is still relatively small, with just a $3 billion market cap (in comparison, Baidu is $12 billion). I now think SOHU can get to $5-6 billion market cap pretty easily, especially with them on track to make $3.35 next year (PE is very cheap at just 24x earnings). Put a 45x PE on next year's earnings estimate (still way too low in my opinion) and you get $150 stock. In comparison, BIDU sells at 55x 2009 earnings and a whopping 16x revenues, so there is reason to believe that SOHU can get a much higher valuation.

I visualize Sohu galloping higher day after day as multiple growth funds continue to build a position of hundreds of thousands of shares each.

Disclosure: I like the stock and have made the Decemeber $135 calls a new POWER PLAY.

Comments

[weng ho teng]

Buying quality China online stocks is a solid investing decision in 2008.

There is also a place for growth stocks as well.

MYST.OB is a full partner with Google and China Netcom.

They are profitable and are launching Subaye English b2B website to compete with Alibaba English.

Quite a bright future there at MYST.OB

[User 138362]

Typical rhetoric near the peak of a nice bull run. Not very rigourous.

[zoltan kovacs]

SOHU is a nice investment, it has been consolidating for four years now and earnings , and the business model changed for the better. For China its still a smallcap stock in a dynamically growing market that isnt easy to penetrate for newcomers. Internal competition could be much worse.

[Brandon Gersch / chopshop]

Thanks for being just another barometer of shorts to double down on. Please put me on your mailing list for try #2, I'd hate think of possibly missing whatever the next "long" you pick is gonna be. Let me give you a list to start with: pot, x, drys, bidu, mdr, cy. Start there, at the really really really easy ones and then work your way back to financials. Good try kid, better luck next time. Aceclown.

[borisb]

Earnings based on one momentarily hot video game title do not warrent the PE valuation you are speculating.