China witnessed 2.3% annual GDP growth in 2020 at a time when most major global economies were struggling to recover. The country is now striving to achieve its targeted 6%-plus GDP growth for 2021. The heightened demand worldwide for China-manufactured goods and major investments in its strategic industries and fixed assets should  contribute to what will likely be solid growth by China this year.

But despite having robust economic support, many Chinese companies are struggling to stay afloat due to strong competition and continuing political tensions with the Western countries.

Popular Chinese stocks iQIYI, Inc. (IQ) and BEST Inc. (BEST) have been losing momentum for quite some time, and are found frequently in the r/WallStreetBets’ top 10 dashboard. We think this, together with unfavorable analyst sentiment regarding their growth prospects, makes these names best avoided now.

iQIYI, Inc. (IQ)

IQ provides online entertainment services. The company offers various products and services comprising internet video, online games, live broadcasting, online literature, animations, e-commerce, and a social media platform. It also provides membership, content distribution, and online advertising services.

In March, Moonbug Entertainment Ltd., a London-based educational media company, partnered with the IQ and ByteDance/Xigua Video streaming platforms in China to extend the reach of CoComelon to users in Mandarin and English. CoComelon’s enriching content is likely to attract millions of viewers to both the platforms.

IQ’s revenue from the membership services segment has declined 3.5% sequentially to RMB3.84 billion ($587.80 million) for the fourth quarter, ended December 31, 2020. Its operating loss has increased 8.1% sequentially to RMB1.31 billion ($200.40 million). Its net loss is RMB1.53 billion ($237.20 million) for the quarter, up 31.9% from the prior quarter. Its loss per ADS has increased 30.4% sequentially to RMB2.10 ($0.32).

A $0.34  consensus loss per share estimate  for the current quarter, ending June 30, 2021 represents a 17.2% year-over-year decline. IQ has lost 50% over the past month and ended yesterday’s trading session at $13.27.

IQ’s poor prospects are also apparent in its POWR Ratings. The stock has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock also has a D grade for Sentiment and Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see IQ’s ratings for Growth, Value, Stability and Momentum here.

The stock is ranked #60 of 77 stocks in the D-rated China industry.

BEST Inc. (BEST)

BEST is engaged in the smart supply chain services. The company operates through six segments—Supply Chain Management, Express Delivery, Freight Delivery, Global, UCargo and Capital. The company applies its technologies to a range of applications, such as network and route optimization, swap bodies, sorting line automation, smart warehouses, and store management.

In March, BEST signed a strategic partnership agreement with Sinolink Yongfu Asset Management, a subsidiary of Sinolink Securities. The company has sold RMB517 million ($79.62 million) worth of its assets that pertain to its external B2C truck leasing business to Sinolink.

BEST’s total revenue decreased 8.9% year-over-year to RMB9.26 billion ($1.42 billion) for the fourth quarter, ended December 31, 2020. The company’s gross profit came in at RMB50.05 million ($7.67 million), which represented a 91.1% year-over-year decline. Its loss from operations was RMB502.45 million ($77 million) for the quarter, compared to  RMB108.80 million ($16.674 million) in income from operations in the fourth quarter of 2019. BEST’s non-GAAP net loss was  reported at RMB475.68 million ($72.90 million) for the quarter, compared to RMB146.83 million ($22.50 million) in net income in the prior-year period. Also, its non-GAAP loss per share increased 212.8% year-over-year to RMB1.22 ($0.19).

Analysts expect BEST’s EPS to remain negative in the next quarter, ending June 30, which indicates a 200% decline year-over-year. Also, it missed the Street’s EPS estimates in three of the trailing four quarters. BEST has lost 78.1% over the past year and 74.2% over the past six months. It ended yesterday’s trading session at $1.28, 77% below its 52-week high.

BEST’s POWR Ratings are consistent with this bleak outlook. The stock has an F grade for Sentiment, and a D grade for Growth and Stability. We have also graded BEST for Value, Quality and Momentum. Click here to access all of BEST’s ratings.

BEST is ranked #51 in the D-rated China industry. 

IQ shares were trading at $13.19 per share on Wednesday afternoon, down $0.08 (-0.60%). Year-to-date, IQ has declined -24.54%, versus a 9.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...

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