China-based UP Fintech Holding Limited (TIGR), which has been dubbed the “Robinhood of China,” has surged 452.7% in the past three months.
Xiaomi and Interactive Brokers-backed TIGR is a leading online brokerage firm that offers a proprietary trading platform under Tiger Brokers that enables investors to trade in equities and other financial instruments on multiple exchanges around the world.
However, we have seen no company-centric developments in the past couple of months that would justify its TIGR’s stellar return.
So, here is what’s behind TIGR’s performance:
Recent Analyst Upgrade
On February 2, research firm Kerrisdale Capital announced that it was going long on TIGR. The firm stated that TIGR is profitable and that it believes the company is taking an approach similar to Robinhood, but in a less mature market. The report acknowledged the broker’s popularity among tech-savvy Chinese millennials. The stock popped 16% following this announcement.
Since its inception in 2015, TIGR’s platform has been attracting record numbers of new clients as the company has continued to innovate and add new features to enhance user experience. In line with its progress, the company secured its one-millionth client account in late October 2020. In the third quarter, TIGR added 46,800 funded accounts, seven times the quarterly growth rate in the same period last year. Moreover, its total funded accounts hit 214,700, an increase of 110.7% over the same period last year.
In the third quarter ended September 30, 2020, TIGR’s revenues surged 148.2% year-over-year to $38 million. Its operating income improved to $7.4 million from an operating loss of $2.5 million in the same period last year. Its total account balance grew 188.1% year-over-year to $10.9 billion, while its total number of customers with deposits soared 110.7% year-over-year to 214.7K. Its net income per ADS came in at $0.027, compared to the year-ago loss of $0.009 per ADS.
Former President Trump signed an executive order last month that forced U.S. stock exchanges to delist some Chinese companies and banned U.S. citizens from investing in these companies. In addition, the U.S. Congress passed a law that could potentially kick Chinese companies off U.S. exchanges in 2022 sets if they do not comply with domestic auditing requirements. The new Biden administration has inherited this tense and messy relationship with China from his predecessor and as such investors do not expect him to act quickly on this restriction.
Although the company has begun tackling the auditing issue by appointing KPMG Huazhen LLP as its public accounting firm, with political tensions between the world’s largest two economies as the backdrop, TIGR’s pipeline of investment banking offerings could suffer and the firm may not be able to sustain its high growth rate seen in 2020.
POWR Ratings Indicate Ambiguous Prospects
TIGR has an overall rating of C, which equates to Neutral in our POWR Ratings system.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, TIGR has a grade of A for Sentiment, consistent with favorable analyst expectations.
However, TIGR has a Value Grade of F, which is in-part based on the stock’s significantly higher-than-industry forward p/e ratio (214.31 vs 11.80). In addition, TIGR has a grade of D for Stability, indicating that the stock is volatile compared to its peers.
Beyond what I have stated above, we have also given TIGR grades for Growth, Momentum, Quality, and Industry. Get all the TIGR ratings here.
TIGR has rapidly grown from a start-up to a leading brokerage house. The company is gaining prominence, attracting record new clients, growing its top line at an accelerated pace and is setting its sights on rapid international expansion. In the third quarter, the company expanded its brokerage services in Singapore and Australia, and overseas clients now represent one-fifth of new accounts.
However, these positive developments do not adequately justify TIGR’s premium valuation. The company has been consistently improving its financials, but it is a question of whether the company can sustain its stellar revenue growth rate and hold its price momentum or is it just another stock bubble.
We think the shares may witness profit bookings in the near-term and investors should wait for a better entry point.
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TIGR shares were trading at $29.57 per share on Wednesday afternoon, up $0.72 (+2.50%). Year-to-date, TIGR has gained 272.42%, versus a 4.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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