Because of the poor economy and the geopolitical risk associated with Russian stocks, most Russian stocks listed on the NASDAQ have done poorly. Shares of leading Russian search engine Yandex (NASDAQ:YNDX) have not been spared. Yandex's stock has fallen 47% in a one year span and is currently trading around its 52 week low.
But despite the underperformance, Yandex is still a compelling growth investment for long term investors.
The bad news has arguably been priced in. Geopolitically, everything negative that can occur has pretty much occurred. Short of Russia breaking from the West completely, things can't get much worse. The same can be said for Russian equities. Everyone who wanted to sell has already sold their Russian holdings by now.
On a long timeline, many good things can occur to Russia's economy. Russia's economy could successfully diversify away from commodities and produce more value added goods. Russia could make peace with Ukraine and the Western sanctions could be dropped. Crude oil prices could rise as excess capacity leaves the marketplace and geopolitical strife spreads. If any of the above occurs, the Ruble will rise, and Yandex's EPS will rise with it.
Another reason to be optimistic about Yandex is that Google could leave Russia if the present geopolitical situation worsens. Russian President Vladimir Putin is famous for his distrust of internet companies; he once remarked that the internet was a CIA project. Given that Google is pretty much the front page of the internet, Putin may decide that Google is a threat and limit Google's Russian reach in the same way that China limited Google's Chinese reach in 2010. There are already signs that Putin is pushing against Google......
Fundamentally, Yandex is cheap. While Yandex's forward PE of 18.9 is slightly higher than the S&P 500's forward PE ratio of 17, Yandex's next 5 year EPS growth rate of 15.5% is significantly higher than the S&P 500's next 5 year growth rate of 6%. Yandex is the leader in Russia's search market and has successfully adjusted to the mobile age. Given Russia's 61% internet penetration, Yandex's EPS will grow faster than Russia's GDP will. Its shares are also poised to benefit if Google leaves Russia.
But despite the underperformance, Yandex is still a compelling growth investment for long term investors.
The bad news has arguably been priced in. Geopolitically, everything negative that can occur has pretty much occurred. Short of Russia breaking from the West completely, things can't get much worse. The same can be said for Russian equities. Everyone who wanted to sell has already sold their Russian holdings by now.
On a long timeline, many good things can occur to Russia's economy. Russia's economy could successfully diversify away from commodities and produce more value added goods. Russia could make peace with Ukraine and the Western sanctions could be dropped. Crude oil prices could rise as excess capacity leaves the marketplace and geopolitical strife spreads. If any of the above occurs, the Ruble will rise, and Yandex's EPS will rise with it.
Another reason to be optimistic about Yandex is that Google could leave Russia if the present geopolitical situation worsens. Russian President Vladimir Putin is famous for his distrust of internet companies; he once remarked that the internet was a CIA project. Given that Google is pretty much the front page of the internet, Putin may decide that Google is a threat and limit Google's Russian reach in the same way that China limited Google's Chinese reach in 2010. There are already signs that Putin is pushing against Google......
Fundamentally, Yandex is cheap. While Yandex's forward PE of 18.9 is slightly higher than the S&P 500's forward PE ratio of 17, Yandex's next 5 year EPS growth rate of 15.5% is significantly higher than the S&P 500's next 5 year growth rate of 6%. Yandex is the leader in Russia's search market and has successfully adjusted to the mobile age. Given Russia's 61% internet penetration, Yandex's EPS will grow faster than Russia's GDP will. Its shares are also poised to benefit if Google leaves Russia.