The worst of our fears came true as Russia’s political climate brought the downfall of various Russian stocks in yesterday’s (Mar 4) trading session. Yandex (NASDAQ:YNDX), the leading online search engine from Russia also faced the backlash in the markets, plunging 14% in yesterday's regular trading session. 'Buy the dip and sell the rip', is a commonly used phrase in today's markets. While this is a definite dip in price, an important question to answer would be, is the price pullback a temporary dip or is the dip here to stay?
Our discussion today focuses on the latest fall in Yandex stock price, reasons for the dip and our expectations going ahead from here.
Russian Incursion creates a potential long term entry point for Yandex 'bulls'
As you would have probably guessed, the fall in stock prices across Russian stocks is due to the crisis in Crimea, which was initiated by the movement of Russian troops into Crimea. If you are wondering how the two events are related, let's understand the events and their relative impact on Russian stock prices in general and on Yandex in particular.
Let’s start with the Russian incursion into Crimea as our starting point. As outlined by us in an earlier article, the macro risk of the Russian economy seems to have taken a toll on Yandex, a company on our positive watchlist for over two quarters now. The incursion into Crimea raises fears of economic sanctions by western countries against Russia, a fact which will put the Russian economy into a tailspin like in the 1990's. A crisis of such magnitude is something the Russian economy simply cannot withstand at the moment. While Putin's reasoning behind the incursion still remains a mystery, the tumble in Russian stocks is only a minor indicator of more repercussions which could follow. To put it plainly, the Russian companies face a severe blow to their businesses in case of sanctions being imposed on Russia.
According to Reuters, the latest news on the East-West crisis in Ukraine is an order back of Russian troops to their bases, a fact which will ease tensions and set right the pricing imbalances which had been created by the scare. So where does this put Yandex and our outlook on Yandex stock.
An update from our earlier article will help to restate our current outlook on the company. As stated in our Q4 2013 earnings review for Yandex, we continue to remain optimistic about the future potential at Yandex inspite of slower growth in Q4 and weaker FY 2014 guidance. However, given the current valuation multiples, revenue and earnings growth, Yandex presents an even more attractive investment opportunity post the latest, Ukrainian crisis initiated, pullback in price.
A look at the current valuation multiples of Google (NASDAQ:GOOG), Baidu (NASDAQ:BIDU) and Yandex sets things in perspective. The table below displays the current valuation multiples of the three companies.
Yandex Relative valuation
|LTM revenue (in billions USD)||59.83||5.20||1.22|
|Market Cap* (in billions USD)||404.16||59.4||11.22|
|LTM price/sales ratio||6.8||11.4||9.2|
|LTM net income (in billions USD)||12.92||1.67||0.41|
|LTM price/earnings ratio||31.3||35.6||27.3|
*as on 03-03-2014
Our earlier bullish outlook on Yandex is further strengthened by the latest fall in stock price. We believe the current price is an attractive long term entry point, as the Mar 4 closing price was the lowest price in the last 6 months. The steep fall in price was associated with the political risk arising from the Ukrainian crisis, which will be set right as tensions start to ease in Crimea with Russian troops backing out of the region. This leads to only one change from our earlier coverage of Yandex: the stock appears even more attractive now.
In conclusion, the latest price drop and current facts pouring in from Crimea suggest a short term rise in Yandex stock is on the cards. For the long term investor, continuing from our earlier bullish outlook on Yandex, the current price could be the moment to play their 'entry' cards.
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To see Yandex Inc.'s latest stock price movement, click here (NASDAQ:YNDX)