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Russia's Yandex (YNDX) Poised For Above-Average Long-term Returns

|Includes: Yandex N.V. (YNDX)

Yandex (YNDX), recommended in the September 2012 issue of the SmallCap Informer newsletter at $21.12, reported third-quarter results on October 30, 2012, with revenues of $235.2 million, up 33% compared with Q3 2011. EPS were up 26.4% to $0.22. The company explained that core contextual search business drove the strong top-line growth and maintained its 60+% market share of the Internet search business in Russia.

YNDX also launched its own cloud-based browser, with support for automatic translations, security to block malicious websites, and user-selectable search engines. Third-party developers can also customize the browser for their particular needs.

Since the earnings report was released, Yandex has released a search app for the iPad and rolled out a enhancements to its automobile classified ad service. The price has also fallen from a peak of $23.31 on October 31 to a recent price of $21.15. On the street, analysts are projecting 29% EPS growth over the next five years. Even if the company grows on average well below that rate and the P/E Ratio contracts accordingly, the stock is still poised to deliver above-average returns at its current valuation.

We see Yandex as a buy up to $23.00.

Disclosure: I am long YNDX.