Even though Beijing’s ‘crackdown’ on major tech companies has caused a decline in their stocks recently, the industry holds immense potential. According to JPMorgan Asset Management, China’s technology stocks are attractive despite near-term uncertainty related to the regulatory crackdown.
Because the government is potentially curtailing these companies’ most lucrative businesses, such as fintech for e-commerce, they are now investing heavily in new areas of growth, such as cloud computing, autonomous driving and artificial intelligence. Although the chances of the U.S. Securities and Exchange Commission delisting Chinese stocks remain high, the threat does not seem to be impeding the companies’ business operations nor investor enthusiasm for the names.
Furthermore, because China’s economic recovery is happening faster than other major economies, investors are extremely bullish on Chinese stocks. Given this backdrop, Wall Street analysts predict financially-solid Chinese stocks Alibaba Group Holding Limited (BABA), Baidu, Inc. (BIDU), and HUYA Inc. (HUYA) will advance more than 40% in the near term.
Alibaba Group Holding Limited (BABA)
Based in Hangzhou, China, BABA is an established provider of online and mobile commerce businesses. The company operates through four segments: Core Commerce, Cloud Computing, Digital Media and Entertainment, Innovation Initiatives and others. In BABA, provides payment services and financial services for consumers and merchants through its online platforms.
Last month, Taobao Live, a mobile commerce platform that is operated by BABA, revealed that it would enhance its ecosystem to yield further success for its partners. Its target is to support 2,000 livestream channels and 200 partners in reaching annual sales of RMB100 million ($15.4 million) each. This should extend the company’s reach, grow its businesses and help it remain competitive.
BABA’s revenue grew by 64% year-over-year to RMB187.39 billion ($28.60 billion) in its fourth fiscal quarter, ended March 31, 2021. The company’s adjusted EBITDA increased 14% year-over-year to RMB22.61 billion ($3.45 billion), while the company’s non-GAAP net income increased 18% year-over-year to RMB22.22 billion ($4 billion). It reported a non-GAAP EPS of RMB1.29 ($0.20) during the quarter, representing a 12% increase year-over-year.
Analysts expect BABA’s revenue to increase 30.6% year-over-year to $146.8 billion in its current fiscal year, 2022. The company’s EPS is expected to increase 2.7% year-over-year to $2.27 in the current quarter ending June 2021. The stock has gained 7.3% over the past year.
Of the 26 analysts that have rated the stock, 25 rated it Buy. A $304.55 consensus price target represents a 42.3% potential upside from its last closing price of $213.96.
(Note that BABA is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.)
Baidu, Inc. (BIDU)
Founded in 2000, BIDU is a leading search engine, knowledge and information centered Internet platform and AI company. Its flagship product, Baidu App, is the No. 1 search-plus-feed app in China. The company operates through two segments—Baidu Core and iQIYI.
In January, BIDU unveiled its plan to establish a company to produce intelligent electric vehicles (EV), and disclosed that it has entered a strategic partnership with multinational auto manufacturer Zhejiang Geely Holding Group. These decisions should pave the way for the company’s further development and growth.
In its fiscal first quarter, ended March 31, 2020, BIDU’s revenue increased 25% year-over-year to RMB28.13 billion ($4.29 billion). The company reported a 204% year-over-year increase in its operating income to RMB4.36 billion ($666 million), while the company’s net income increased 39% year-over-year to RMB4.3 billion ($656 million). Its EPS increased 40% year-over-year to RMB12.38 ($1.89) during the quarter.
Analysts expect BIDU’s EPS to increase 21.8% year-over-year in the next year to $11.72. Its revenue is expected to increase 26.4% year-over-year to $4.85 billion in the current quarter, ending June 2021. The stock has gained 84.6% over the past year.
Of 17 Wall Street analysts that have provided ratings for the stock, 14 have rated it Buy. Closing yesterday’s trading session at $196.27, the $307 average analyst price target represents a potential 56.4% upside.
(Note that BIDU is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.)
HUYA Inc. (HUYA)
HUYA is a leading game live streaming platform in China with a large and active game live streaming community. The company has developed e-sports live streaming by connecting with e-sports event organizers, major game developers, and publishers and have further extended their domain to entertainment genres, such as talent shows, anime and outdoor activities.
HUYA’s total net revenue increased 8% year-over-year to RMB2.60 billion ($397.6 million) in the first quarter, ended March 31, 2021. Its other income increased year-over-year to RMB75.97 million ($11.6 million), while its non-GAAP net income increased 0.9% year-over-year during the quarter and came in at RMB265.92 million ($40.6 million). The company’s non-GAAP EPS was RMB1.10 ($0.17) for the period.
HUYA’s EPS is expected to increase 90.2% year-over-year to $0.97 in the next year, while its revenue is expected to increase 12.1% year-over-year to $447.69 million in the current quarter, ending June 2021.
Of the eight analysts that have rated the stock, four rated it Buy. A $22.16 consensus price target represents a potential 44.8% upside from its last closing price of $15.30.
BABA shares were trading at $218.78 per share on Tuesday afternoon, up $4.82 (+2.25%). Year-to-date, BABA has declined -5.99%, versus a 12.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Samiksha Agarwal
Samiksha Agarwal has always had a keen interest in financial markets. This has led her to a career as a financial journalist. Through her extensive knowledge of fundamental analysis, her goal is to help investors identify untapped investment opportunities in the stock market. More...
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