Why Autohome, Inc. Shares Popped, Then Plunged Today

Why Autohome, Inc. Shares Popped, Then Plunged Today

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 Autohome, initially jumped more than 13% Monday after the company released encouraging fourth-quarter results and forward revenue guidance. Despite the good results, however, Autohome gave up its early gains, and ultimately closed down 2.6%.

So what: Quarterly revenue rose 74.1% to $63.8 million, which translated to adjusted net income of $0.21 per diluted share. By contrast, analysts were looking for earnings of just $0.17 per share on sales of $59.63 million.

Now what: Going forward, Autohome expects current-quarter revenue in the range of $52.5 million to $54.8 million, or good for a year-over-year increase of 55.6% to 62.5%. Analysts, on average, were expecting first quarter sales of $51.73 million.

So why the drop? First, even though the Chinese auto market has a tremendous amount of growth ahead of it, consider the fact that shares of Autohome are currently trading at a lofty 22 times last year's sales. Autohome management also admitted on the subsequent conference call that "the competition in our sectors will be furious, so there could be some margin compression pressure" going forward.

Finally, while Autohome's expected first quarter sales growth is impressive, it does represent a slight deceleration over past results. This, in turn, could fuel investors' concerns regarding whether Autohome's earnings growth might follow suit. That doesn't mean Autohome won't be able to continue growing at a healthy clip, but at today's levels, I'm not particularly compelled to dive in.

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The article Why Autohome, Inc. Shares Popped, Then Plunged Today originally appeared on Fool.com.

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