Why Sohu.com, Inc. Slipped Today

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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 Chinese online media company Sohu.com, Inc.  fell 2% today after its weak Q1 guidance prompted a downgrade -- equal-weight to underweight -- from Morgan Stanley.

So what: Along with the downgrade, analyst Philip Wan lowered his price target to $57.60 (from $60.70), representing about 19% worth of downside to yesterday's close. While contrarians might be attracted to Sohu's share-price weakness in recent months, Wan thinks there's more room to fall given the margin-pressuring headwinds continuing to work against it.

Now what: According to Morgan, Sohu's risk/reward trade-off isn't too appealing at this point. "Despite solid performance from brand ads and Sogou, heavier investments in Changyou (online gaming) result in a softer 2014 margin outlook," noted Wan. "Competition remains intense for its online video and search businesses. Move to UW due to low visibility on near-term margin with a new PT of US$57.6 per share." With Sohu now off more than 20% from its 52-week highs, however, patient growth investors might want to use that short-term uncertainty to build a long-term position.

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The article Why Sohu.com, Inc. Slipped Today originally appeared on Fool.com.

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Sohu.com. 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.

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