Yahoo Surges After Q1 Earnings. Is it Time To Buy?

As I write this, shares of Yahoo Inc. (YHOO) have gapped up after hours following the internet company’s first-quarter earnings report. Here’s what you need to know:

This past quarter not only marked the ninth consecutive period of year-over-year growth in Search revenue—it was also the strongest in terms of sales since 2010. According to CEO Marissa Mayer, this bodes well for future growth in its core business. It also looks like Yahoo’s recent acquisition spree is starting to pay off—the company saw 430 monthly mobile users accessing Yahoo’s new products.

For the first quarter the company reported net earnings of $312 million, or $0.29 per share, on $1.133 billion in sales. This represents a 1% decline in sales and a 20% drop in earnings over last year. However, analysts were looking for just $1.08 billion in sales so Yahoo posted a 4% sales surprise. And adjusted earnings came in at $0.38 per share, also beating the consensus EPS estimate by a penny.

Wall Street also celebrated CFO Ken Goldman’s pledge to continue maximizing shareholder value over the short and long run. Yahoo plans to do this mainly through share repurchases, as it has in previous quarters. Last quarter alone the company bought back $450 million of its stock.

This was a solid earnings announcement, and I’m hopeful that we’ll get further good news when the company holds its conference call at 5:00 EST. However, I must stress that YHOO is currently a C-rated hold in Portfolio Grader. In March YHOO shares rallied after Alibaba revealed more concrete plans for its much anticipated IPO.

However, in recent weeks the stock has gotten swept up in the general choppiness that has affected most internet stocks. My stock screens have detected a decline in institutional buying pressure (a measure of the stock’s risk to return prospects), so I’d hold off before adding new money to YHOO.

Conversely, if you’re a current shareholder, this after-market rally is good news to be sure. But I’d wait before selling YHOO, either. We’ll likely get a better picture of Yahoo’s prospects once the company’s executive team takes the microphone in a few moments.

I’ll have an update for you in tomorrow’s Stock of the Day.

Sincerely,

Louis Navellier

Louis Navellier

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