Why SouFun Holdings Ltd. Shares Will Fly Above $15

Does this analyst make a good case? Or from is it just more noise Wall Street?

Brian D. Pacampara, CFA
Brian D. Pacampara, CFA
Apr 16, 2014 at 10:02AM
Technology and Telecom

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of SouFun Holdings (NYSE:SFUN) soared 7% Wednesday morning after Goldman Sachs upgraded the Chinese real estate Internet portal from neutral to buy.

So what: Along with the upgrade, analyst Fei Fang planted a price target of $16.20 on the stock, representing about 27% worth of upside to yesterday's close. So while momentum traders might be turned off by SouFun's particularly sharp pullback over the past month, Fang's call could reflect a growing sense on Wall Street that the company's prospects are now too cheap to pass up.

Now what: According to Goldman, SouFun's risk/reward trade-off is rather attractive at this point. "We upgrade SouFun to Buy from Neutral after the stock's 33% share price pullback from its Mar 6 high (vs. NASDAQ -7%) on weak property transaction volume and sectorwide de-rating," said Fang. "Trading at 12X 2015E P/E (vs. sector average 20X), we believe SouFun has transformed from being competitively challenged (especially in e-commerce) into one of the most defensive vertical leaders due to sustained strength in marketing and listing services, both of which benefit from structural offline-to-online tailwinds regardless of property cycles." Given SouFun's still-highly speculative nature, however, only the most risk-tolerant of Fools should consider buying into that bullishness.