Fang Holdings Limited's (NYSE:SFUN) Poor Growth Outlook Brings Concerns

Fang Holdings Limited (NYSE:SFUN) has been on my radar for a while, and my main concern is around the sustainability of the business going forward. Though its financial status seems robust, it seems like the market is overly optimistic about a doesn't seem to justify the current share price of US$5.02, and here's why.

Firstly, a quick intro on the company - Fang Holdings Limited operates a real estate Internet portal through which it provides e-commerce, marketing, listing, financial, and value-added services. Founded in 1999, it currently operates in China at a market cap of US$2.23B.

The first thing that struck me was the pessimistic outlook for SFUN. A consensus of 8 US internet software and services analysts covering the stock indicates that its revenue level is expected to decline by 7.17% over the next financial year. As SFUN is currently loss-making, this revenue headwind is expected to negatively impact its bottom-line, which should see a further decline from -US$9.26M to US$82.10M over the same time period.

SFUN's financial status is a key element to determine whether or not it is a risky investment - a key aspect most investors overlook when they focus too much on growth. Fang Holdings's balance sheet is healthy, with high levels of cash generated from its core operating activities (0.2x debt) able to service its borrowings. Although its debt level relative to equity is high at 90.28%, I don't see this as much of a risk as it has been declining over the past five years from 301.64%. SFUN also generates income from lending its cash which, in turn, is able to cover its annual interest payment to its debtors. Management exhibits strong capacity to effectively utilize capital, reducing my concerns around the sustainability of the business going forward. SFUN has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. SFUN has managed its cash well at a current level of US$252.92M. However, more than a fifth of its total assets are physical assets and inventory, which means that in the worst case scenario, such as a downturn or bankruptcy, a significant portion of assets will be hard to liquidate and redistribute back to investors.

SFUN currently trades at US$5.02 per share. With 442.92 million shares, that's a US$2.23B market cap, which is in-line with its peers based on its industry and adjusted for its asset level. Currently, it's trading at a fair value, with a PB ratio of 3.09x vs. the industry average of 3.05x.

What initially drew me into SFUN was its robust balance sheet. However, after looking at the prospects of the business, I'm not jumping with joy. Like above, I would rather invest in a company that checks all the boxes - an outstanding business - than a mediocre one. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I've taken my data from.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.