Why E-House Shares Popped


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of China-based real estate services company E-House (NYS: EJ) jumped as much as 20.7% this morning following its first-quarter earnings results.

So what: Break out your hard hat, because you may need it while dodging all the bad news tumbling out of this earnings report. For the quarter, revenue nosedived 29% from the year-ago period, with revenues from real-estate brokerage and agency services both dropping by 47%. E-House's quarterly loss came in at $0.21, which is $0.05 worse than Wall Street had expected. E-House's management noted, however, that despite the curbs put in place by the Chinese government to slow down housing growth, it does believe the worst has passed. Brokerage firm Maxim Group apparently agreed and upgraded the company from sell to hold.

Now what: It's bad enough when we get a Chinese company trading at a low-single-digit P/E ratio and we have trouble trusting the financials. I'm not quite sure how to take it when a company pops 20% on a worse-than-expected loss. To me, this seems to be more of the "buying less bad" strategy in effect, and as I've said on many occasions, this is a poor investment strategy. Until E-House is profitable again, I wouldn't allow one analyst upgrade to change your investment thesis -- and my thesis is to run screaming in the other direction from this stock.

Craving more input? Start by adding E-House to your free and personalized watchlist so you can keep up on the latest news with the company.

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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