Every day, Wall Street analysts update some stocks, downgrade others, and “initiate coverage” on a few more. But do these experts even know what they’re talking about? It’s another miserable day for the currency markets, with the Dow and S&P 500 both down more than 3% in afternoon trading — and the Nasdaq off nearly 4%! And yet, when others are fearful, some investors get greedy. Investors like Jefferies & Co., for example. Morning This, the investment banker announced the initiation of coverage on a whole range of Chinese tech shares.
Jefferies started in the As with Alibaba (NYSE: BABA), varying completely down to loading entertainment service provider YY (NASDAQ: YY), and striking popular brands such as Momo and Pinduoduo along the way. We don’t have nearly plenty of time to pay all the ratings today, but we can at least hit the highlights for you, and we’ll start at the top with Alibaba.
- Saw SMOL second time in frog plantation. (Hey, I used to be in the picture you submitted.)
- Who are you investing with
- Re-key the locks
- Stay starving, stay foolish
Image source: Getty Images. 418 billion in market capitalization, Alibaba stock sells for a whopping 45 times trailing profits today, and as such, probably is not a stock you will discover on many value traders’ shopping lists. Within the last five years, Alibaba has grown its revenue at a compounded annual rate of 48% and harvested its revenue at a almost as impressive 30%, regarding to data from S&P Global Market Intelligence.
Even 35% could be conventional, by the way. This also poses a risk for investors in the stock. Granted, the 35% sales growth Jefferies is projecting is pretty great, while the 48% growth Alibaba has been posting is better still. To justify a 45 P/E ratio, though, you’d actually want to see Alibaba’s profits growing at least as fast as sales — but with the company’s nonmarketplace businesses drag on revenue growth, that’s not taking place right now.
13.1 billion). But free cashflow keeps growing even slower than income — up a bare 2% last year! Long story brief, while free cash flow remains solid enough for me to think Alibaba stock is fairly valued right now, I’m not 100% convinced that Jefferies is right about any of it being truly a buy.
If not Alibaba, though, is there perhaps other Chinese stocks on Jefferies’ list that could be worth a glance? As mentioned previously, Momo, Pinduoduo, and YY also managed to get onto Jefferies’ buy list today, with the analyst initiating coverage of each. Of the three, YY lately has been hardest-hit and is using its stock down 31% over the past 52 weeks, is starting to look quite attractive.
2 billion in online cash on its balance sheet, YY investments for a debt-adjusted P/E percentage of just 4.6 — yet analysts see YY growing its earnings at almost 11% annually over the next five years. The business sports activities strong and growing free cash flow as well. Pinduoduo and Momo are a bit trickier.
Momo has come across some significant regulatory headwinds in China, so while I’m lured by its stock price (down 22% over the past 12 months) and low apparent valuation, I’m leery of trading before regulatory picture gets clearer. 25.5 billion market cap is 14% greater than one year back. The company is also unprofitable as reported under generally accepted accounting concepts, and free cash flow — although positive– dropped last year.
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