More Than Momentum: Stocks Rising for a Reason

Even on the market's worst days, buyout news and other short-term forces can send individual stocks up by 10%, 25%, even 50%.

For example, optimism surrounding new government legislation that will lift limits on student loans kicked the stock prices of lenders First Marblehead (NYSE: FMD) and Sallie Mae (NYSE: SLM) up 10% and 28%, respectively, in only a few days as the bill made its way through Congress.

But beyond less-predictable events like this one are stocks with fundamentally compelling reasons for recent momentum. The trick is to find those stocks. That's where Motley Fool CAPS comes in.

The story behind the story
CAPS is no crowd of lemmings. Its best-performing investors' opinions do more to shape each company's rating than the picks of their poorer-performing peers do. Let's use the collective wisdom of more than 100,000 CAPS investors to filter out the noise and find companies offering strong momentum.

We'll screen for companies with a stock price increase of at least 30% in the past month, a market cap of greater than $100 million, and a beta of less than 3. That'll keep us clear of the wild, pump-and-dump land of penny stocks.

Here's a sample of stocks our screen returned:

Return data is calculated as the difference between the closing price on April 4 and the closing price on May 6, per MSN Money's screen. Star rankings from CAPS.

Let's burrow down through this list of stocks that have thumped the market in the past month and find out the story behind the numbers.

So who is Sohu?
In contrast to the pessimism consistently flashed in headlines about the economy lately, some individual stocks are soaring. In fact, this week's list includes two stocks that have jumped more than 50% in a month. Chinese Internet media and gaming company Sohu.com is one of those momentum leaders, advancing rapidly after blowing by the market's expectations in its most recent quarterly earnings report.

Sohu has made a habit of performing beyond what market analysts believe the Chinese market for Internet services can support. Following its first-quarter earnings report, CEO Charles Zhang actually participated in the conference call from the base camp of Mount Everest while on site for the Olympic torch relay. While the oxygen in the air there was low, Sohu's financial results were better than they've ever been, as revenue grew 30% from the previous quarter, thanks in part to Sohu.com's role as the official Internet content supplier for the Olympic Games.

But what has really shown exceptional momentum in Sohu's business is online gaming, where revenues grew a dramatic 71% from the previous quarter. The recently launched Tian Long Ba Bu game has done even better than management expected, as registered accounts jumped 22% from last quarter. In addition to drawing more players into the game, Sohu has done a great job of converting non-paying accounts to paying ones. In the first quarter, paying accounts increased from 1.1 million to 1.39 million. And, oh, yeah, average revenue from each account jumped 35%, too.

With international interest -- and local fervor -- still building around the Olympic Games, Sohu is in a strong position to further boost growth from its entrenched online position. Management is staying conservative, though, and targets revenue growth of "only" 5% to 10% for the second quarter. So once again, investors are left with the dilemma of whether Sohu can actually keep this hot trend going and grow the business beyond expectations.

With the dramatic run-up in the stock, Sohu trades at a stratospheric earnings multiple of 59, which is one reason why some CAPS investors are hedging on future prospects of market outperformance. While more than 92% of CAPS players rating the company are bullish, 17 of the 193 All-Star players weighing in have registered bearish votes. Some of those All-Star bears have cited the extreme valuation and formidable competition from the likes of local search leader Baidu, which is also experiencing great momentum. Like many Olympic matches, it looks like this competition is going to go down to the wire.

What's your story? Whether you buy the tale of a soaring or a souring stock, your own research is more important than collective opinions. But these collective opinions can make your due diligence a whole lot easier.

Add your take on these or any of the 5,600 stocks that our 100,000-plus investors have covered in Motley Fool CAPS. It's totally free to be a part of the community, and the payback is more than worth it.