Why SouFun Holdings Ltd Shares Tumbled Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of SouFun Holdings Ltd (NYSE: SFUN  ) fell more than 10% during Friday's intra-day trading on worries the Chinese real estate Internet portal could see pricing pressure as home prices in China slip.

So what: The Wall Street Journal today reported (may require subscription) that home prices in China dropped roughly 0.3% in May -- the first such decline for the month in almost two years. Facing a glut of properties in less-developed cities, developers are lowering prices in an effort to move excess inventory. In turn, many potential buyers are holding off on new purchases in anticipation of further price cuts. This could ultimately result in real estate agents pressuring online portals like SouFun to temper listing prices.

Now what: Of course, it's not particularly surprising considering SouFun shares plunged earlier this month following mixed first-quarter results and weak forward guidance. Shares had risen around 11% since then going into yesterday's close, so today's drop brings it roughly back to pre-earnings levels. But I still like SouFun's risk/reward with the stock currently trading around 12 times next year's expected earnings. Over the long-term, I think SouFun should still be able to reward patient investors.

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