China was the first country to recover from the COVID-19-pandemic-led recession, driven by a surge in retail sales, industrial production and investment in fixed assets. The country reported 18.3% GDP growth in the first quarter of 2021, its highest since 1992. As the world’s largest internet market, China has witnessed the rapid digitalization of various businesses during the pandemic. However, policy tensions between the U.S. and China have greatly affected the technology and supply chain sectors in China, and caused some Chinese stocks trading in U.S. markets to retreat.
However, in its five-year plan draft, China has announced a focus on its technology sector and plans to boost domestic production to combat competition from Western countries. This, combined with rising consumer demand, should keep driving China’s economic growth.
Given this backdrop, we believe small- and micro-cap Chinese stocks Viomi Technology Co., Ltd (VIOT), China Online Education Group (COE), LightInTheBox Holding Co., Ltd. (LITB), and China Automotive Systems, Inc. (CAAS) have the potential to deliver solid upside in the coming months.
Viomi Technology Co., Ltd (VIOT)
With a market capitalization of $551.11 million, VIOT operates an Internet of Things (IoT) Home platform, through which it develops and sells IoT products, together with a suite of complementary consumable products and value-added businesses. The company sells its products directly to consumers through its online platform, Viomi Store mobile app, e-commerce channels, and brick & mortar experience stores.
On May 24, 2021, VIOT launched its first Viomi Alpha UV (S9) robot vacuum that features innovative UV sterilization to deliver effective, and intensive cleaning. While in testing, the Alpha UV (S9) sterilization system is said to have effectively killed 99% of five kinds of bacteria and cleaned significantly deeper than traditional manual cleaning. Powered by a powerful 5200mAh battery, the company expects to witness good sales of the vacuum cleaner in the recovery period.
During its fiscal year 2021 first quarter, ended March 31, VIOT’s total net revenues increased 64% year-over-year to $191.64 million. The company’s gross profit came in at $40.45 million, up 84.8% from the prior-year period. Its income from operations was reported at $7.19 million, which represents 276.1% gain year-over-year. VIOT’s total comprehensive income increased 81.7% year-over-year to $8.12 million. Its net income per ADS increased 164% year-over-year to $0.10.
A $0.12 consensus EPS estimate for the current quarter, ending June 30, 2021, represents a 50% year-over-year improvement. The $293.21 million consensus revenue estimate for the current quarter, represents a 16.9% rise from the prior-year period. VIOT has climbed 60.8% year-to-date to close yesterday’s trading session at $7.90.
VIOT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has an A grade for Momentum, and a B grade for Growth, Value and Sentiment. We have also graded VIOT for Stability and Quality. Click here to access all VIOT ratings.
VIOT is ranked #8 of 75 stocks in the China group.
China Online Education Group (COE)
COE provides online English language education services to students in China and the Philippines. The company operates online and on mobile education platforms that enable students to take live interactive English lessons with international foreign teachers. It also offers various specialty courses that are focused on situation-based English education and test preparation needs. It has a $267.73 million market capitalization. On April 23, 2021, COE agreed to acquire Beijing Xiangyue Education Technology Co., Ltd. (Kaola Reading), a leading developer and provider of Chinese reading ability assessment systems and reading training systems. Using Kaola Reading’s AI and machine learning technologies, COE hopes to develop an English assessment and rating system that will enable it to provide more targeted course offerings to students and add graded reading content to further diversify its curriculum portfolio. This enhanced learning experience should expand its customer base in the near-term.
For its fiscal year 2021 first quarter, ended March 31, COE’s net revenues came in at $91.64 million, which represents a 23.2% year-over-year improvement. The company’s gross profit increased 28.5% year-over-year to $67.26 million. As of March 31, 2021, the company had $264.1 million in cash, cash equivalents, time deposits and short-term investments. Analysts expect COE’s revenue to improve 25.8% year-over-year for the current quarter, ending June 30, 2021, to $93.50 million. COE closed yesterday’s trading session at $12.45.
COE’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock has an A grade for Value, and a B grade for Sentiment and Quality. In addition to the POWR Ratings grades we’ve just highlighted, one can see COE’s ratings for Growth, Momentum and Stability here.
COE is ranked #4 in the China group.
LightInTheBox Holding Co., Ltd. (LITB)
With a $263.37 million market capitalization, LITB operates as a cross-border e-commerce platform that delivers products directly from manufacturers to its customers worldwide. The company provides customized, special occasion, and fast fashion apparel, general merchandise and other products. It has additional websites for specific products and geographic regions, including www.ouku.com for products targeting its Chinese customer base.
LITB’s total revenues came in at $112.05 million for its fiscal year 2021 first quarter ,ended March 31, 2021, which represented a 117.5% improvement year-over-year. The company’s GAAP gross profit increased 118.6% year-over-year to $52.26 million. Its income from operations is reported at $1.37 million for the quarter, compared to a $3.18 million loss in the year-ago period. LITB’s net income came in at $1.31 million, up 110.6% from the prior-year period. Its earnings per ADS EPS remained at $0.01. LITB has gained 197.5% over the past year and closed yesterday’s trading session at $2.35.
It’s no surprise that LITB has an overall B rating, which equates to Buy in our POWR Ratings system.
The stock has a B grade for Value and Quality. To see additional POWR Ratings for LITB’s Growth, Stability, Sentiment and Momentum, click here.
LITB is ranked #1 in the China group.
China Automotive Systems, Inc. (CAAS)
CAAS manufactures and sells automotive systems and components through its subsidiaries. The company provides after sales services, research and development support services, and sells its products to original equipment manufacturing customers. It has a $163.82 million market capitalization.
Today, CAAS’ wholly owned subsidiary, Hubei Henglong Automotive Systems Group Co. Ltd., purchased a 40% stake in Sentient AB, a Swedish automotive technology company. Amid the rise of artificial intelligence and electrification in the automotive sector, both the companies hope to improve their steering technologies to increase penetration into the fast-growing market.
In March, CAAS introduced its new electric power steering (EPS) product. Seamlessly connected with vehicle data, CAAS’ new EPS system enables drivers to adapt to different road conditions and significantly enhances user experiences. The company has begun mass production of EPS products for new vehicle models of the leading Chinese automaker, Great Wall Motors and has already received purchase orders from JAC, Chery Auto and Fiat Chrysler Automobiles. The company hopes to generate significant returns from the product.
CAAS’ net product sales for its fiscal year 2021 first quarter, ended March 31, increased 77.2% year-over-year to $130.34 million. The company’s gross profit is reported at $19.75 million, which represents a 77.1% year-over-year improvement. Its income from operations came in at $4.16 million, up 311.1% from the prior-year period. CAAS’ comprehensive income came in at $1.08 million for the quarter, versus a $4.54 million loss in the year-ago period. Its EPS is reported at $0.10, compared to zero in the first quarter of 2020.
A $0.07 consensus EPS estimate for the current quarter, ending June 30, 2021, represents a 153.8% improvement year-over-year. The $117.18 million consensus revenue estimate for the current quarter represents a 40.9% rise from the prior-year period. CAAS has gained 113.6% over the past year to close yesterday’s trading session at $5.31.
CAAS’ POWR Ratings reflect its solid prospects. The company has an overall B rating, which translates to Buy in our proprietary ratings system.
CAAS has an A grade for Value and Sentiment, and a B grade for Growth and Momentum. In addition to the POWR Ratings grades we’ve just highlighted, one can see CAAS’ ratings for Stability and Quality here.
CAAS is ranked #5 in the China group.
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VIOT shares were trading at $7.94 per share on Thursday afternoon, up $0.04 (+0.51%). Year-to-date, VIOT has gained 54.17%, versus a 13.72% 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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