Warren Buffett attracts a lot of attention. As the world's third-richest person and most celebrated investor, thousands try to glean what they can from his thinking processes and track his investments.
While we can't know for sure whether Buffett is about to buy SINA
- Consistent earnings power.
- Good returns on equity with limited or no debt.
- Management in place.
- Simple, non-techno-mumbo-jumbo businesses.
Does SINA meet Buffett's standards?
1. Earnings power
Buffett is famous for betting on a sure thing. For that reason, he likes to see companies with demonstrated earnings stability.
Let's examine SINA's earnings and free cash flow history:
Source: Capital IQ, a division of Standard & Poor's. Free cash flow is adjusted based on author's calculations.
SINA has produced reasonably stable earnings and free cash flow over the past five years. (The earnings surge and plunge in 2009-2010 were due to gains and losses booked on sales of investments, respectively.)
2. Return on equity and debt
Return on equity is a great metric for measuring both management's effectiveness and the strength of a company's competitive advantage or disadvantage -- a classic Buffett consideration. When considering return on equity, it's important to make sure a company doesn't have an enormous debt burden, because that will skew your calculations and make the company look much more efficient than it actually is.
Since competitive strength is a comparison among peers, and various industries have different levels of profitability and require different levels of debt, it helps to use an industry context.
Return on Equity (LTM)
Return on Equity
Source: Capital IQ, a division of Standard & Poor's.
SINA produces a moderately high return on equity while employing almost no debt.
CEO Guowei Cao has been at the job since 2006. Prior to that, he held other senior-level positions at SINA for a number of years.
Internet advertising in China can be fairly susceptible to rapid changes, both technological and market-based.
The Foolish conclusion
While it's unlikely that Buffett would buy SINA, in large part owing to the complexity and high-tech nature of its industry, we've learned that the company does exhibit some of the other characteristics of a quintessential Buffett investment: consistent earnings, tenured management, and moderately high returns on equity.
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Ilan Moscovitz doesn't own shares of any companies mentioned. You can follow him on Twitter @TMFDada. Motley Fool newsletter services have recommended buying shares of Baidu, Sohu.com, and SINA. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.