Chart of the Day – QIHU: Security Detail

by Dan May 27, 2014 12:20 pm • Commentary

QIHU, the Chinese internet security and search company reports their Q1 results tonight after the close.  The options market is implying about a 6.5% one day move tomorrow which is inline with the 4 qtr average.

Analysts remain overwhelmingly bullish with 19 buys, 3 holds and 3 sells and an average 12 month price target of about $137 or 55% higher than current levels.  Analysts expect growth to remain torrid with earnings this year and next to gain by about 50%, on sales growth of 72% and 47% respectively.  On an eps basis trading at 34x this year, QIHU looks fairly attractive to its U.S. internet brethren despite trading 23x trailing sales.  You get the point, if the growth doesn’t come through QIHU will be a VERY expensive stock, but for now the greater fools parade marches on through the Chinese internet.

The technical set up is nothing short of fascinating. Looking at the one year chart below, the stock’s steady incline in 2013 from $40 to $80, and then its subsequent consolidation into year end in some ways showed some restraint.  The price action though in Q1 2014 was downright ludicrous, with the stock rising 57% from early January to early March.


Since the March highs the stock saw a peak to trough decline of 40%, and after its recent bounce is down about 30%, but still up 8% on the year.  On a very near term basis , $95 (red line) should serve as decent technical resistance, while $80 (green line) should be important technical support.

On the options front, implied vol, the price of options seems pretty fair when you look at the 1 yr chart below of 30 day at the money IV (blue) vs 30 day Realized Vol (white) trading very close to each other:

QIHU 1yr chart of 30 day at the money IV vs Realized vol from Bloomberg
QIHU 1yr chart of 30 day at the money IV vs Realized vol from Bloomberg

This is the type of chart we would normally look to “sell the move” in but remembering that this is a  Chinese internet stock, we will let the dust settle and get a look at the results and guidance first.