Despite grappling with challenges such as declining trade and foreign investment, a volatile housing market, and deflation, China continues to stand as one of the globe's largest and most rapidly advancing economies. Moreover, recent data revealing Chinese economic growth for 2023 surpassing Beijing's targeted rate of 5% adds further optimism.
Given the backdrop, adopting a bullish stance on three fundamentally sound Chinese stocks, Sohu.com Limited (SOHU), Hello Group Inc. (MOMO), and Vipshop Holdings Limited (VIPS), could be wise. Before we dive into the fundamentals of the highlighted stocks, let us briefly examine the prevailing economic landscape of China.
As per the National Bureau of Statistics (NBS), China's GDP demonstrated a remarkable year-on-year growth of 5.2% in 2023, surpassing both the annual target set at around 5% and the 3% GDP growth rate in 2022. Additionally, the country's GDP for the final quarter of 2023 also experienced a noteworthy increase of 5.2%.
While real estate investments witnessed a 9.6% decline in 2023, investments in infrastructure and manufacturing rose by 5.9% and 6.5%, respectively. The overall fixed asset investment for 2023 showed a modest increase of 3%, slightly surpassing the anticipated 2.9% growth.
Furthermore, retail sales experienced a 7.4% rise in December 2023 compared to the previous year, while industrial production demonstrated a strong performance with a 6.8% year-on-year surge in the same month, surpassing the expected growth of 6.6%.
Kang Yi, the head of the NBS, pointed out that even though China faced external and internal pressures, the country managed to meet its major goals for 2023. This success is particularly highlighted by significant improvements and rebounds in the overall economic situation.
On top of it, The Chinese Academy of Sciences (CAS) anticipates a 5.3% growth in China's economy for the current year, outpacing the World Bank's projection of 4.5%. Hong Yongmiao, the director of the CAS Centre for Forecasting Science, highlighted China’s potential to achieve a more rapid growth rate if it effectively stabilizes market expectations.
Overall, the prevailing economic landscape and optimistic forecasts make a compelling case for considering investment in SOHU, MOMO, and VIPS. To that end, let’s now dig deeper into the fundamentals of these China stocks, beginning with number three.
Stock #3: Sohu.com Limited (SOHU)
Headquartered in Beijing, SOHU provides online video and game products and services on PCs and mobile devices in China. In addition, the company offers online news, information, and content services through mobile phone applications.
The stock’s trailing-12-month cash per share of $9.83 is 560.9% higher than the $1.49 industry average. Likewise, SOHU’s trailing-12-month gross profit margin of 76.17% is 55.1% higher than the industry average of 49.13%.
In terms of forward Price/Sales, SOHU is trading at 0.54x, 55% lower than the industry average of 1.20x. Furthermore, its forward Price/Book multiple of 0.31 is 84.1% lower than the 1.96x industry average.
For the fiscal third quarter, which ended on September 30, 2023, SOHU’s total revenues amounted to $145.43 million, while its gross profit came in at $110.96 million. Its total operating expenses declined 12.1% from the year-ago value to $131.59 million.
Moreover, the company’s attributable net income stood at $21.37 million and $0.63 per ADS versus an attributable net loss of $21.58 million and $0.63 per ADS in the same period last year, respectively.
Analysts predict SOHU’s revenue for the fiscal year ended December 2023 to come in at $597.98 million, while its revenue for the fiscal year ending December 2024 is projected to be $586.52 million.
Over the past three months, SOHU’s shares gained 8.7% to close the last trading session at $9.54.
SOHU’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value and Sentiment. In the A-rated 39 stock China industry, it is ranked #17. Click here to see SOHU’s ratings for Growth, Momentum, Stability, and Quality.
Stock #2: Hello Group Inc. (MOMO)
Headquartered in Beijing, MOMO provides mobile-based social and entertainment services in China. The company offers Momo, a mobile application that connects people and facilitates social interactions based on location, interests, and various online recreational activities.
MOMO’s trailing-12-month levered FCF margin of 13.85% is 76.2% higher than the 7.86% industry average. Likewise, its trailing-12-month EBIT margin of 17.30% is 108.9% higher than the industry average of 8.28%. Furthermore, the stock’s trailing-12-month net income margin of 15.58% is 368.9% higher than the industry average of 3.32%.
In terms of forward non-GAAP P/E, the stock is trading at 4.37x, 72.4% lower than the industry average of 15.83x. Its forward EV/Sales multiple of 0.34 is 81.7% lower than the 1.86x industry average. Furthermore, MOMO’s forward EV/EBITDA ratio of 1.71x is 89.1% lower than the industry average of 15.73x.
In the fiscal third quarter, which ended on September 30, 2023, MOMO’s total net revenues stood at $417.06 million, while its income from operations increased 19.5% year-over-year to $85.22 million.
In addition, during the same quarter, the company’s attributable net income amounted to $74.89 million and $0.19 per share, up 21.2% and 24.5% from the year-ago value, respectively.
Street expects MOMO’s EPS for the fiscal fourth quarter (ended December 2023) to increase 1.8% year-over-year to $0.36, while its revenue for the same quarter is expected to be $424.90 million. Moreover, the company has an excellent surprise history, surpassing the EPS and revenue estimates in each of the trailing four quarters.
The stock gained marginally intraday to close the last trading session at $6.52.
MOMO’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Value. Within the same A-rated industry, it is ranked #16. Click here to see the other ratings of MOMO for Growth, Momentum, Stability, Sentiment, and Quality.
Stock #1: Vipshop Holdings Limited (VIPS)
Headquartered in Guangzhou, VIPS operates online platforms in China. It operates in Vip.com; Shan Shan Outlets; and others segments. The company offers womenswear, menswear, sportswear, shoes and bags, accessories, skincare and cosmetics, and supermarket products.
On October 25, 2023, VIPS revealed that its MSCI ESG rating had been raised from "A" to "AA." This upgrade positions the company as a frontrunner among more than 300 companies in the consumer discretionary industry. Furthermore, the notable improvement underscores VIPS’ robust ESG management efforts and emphasizes its commendable strides in sustainable development practices.
VIPS’ trailing-12-month levered FCF margin of 6.44% is 19.2% higher than the 5.40% industry average. Likewise, its trailing-12-month cash per share of $4.76 is 105.4% higher than the industry average of $2.32. Furthermore, the stock’s trailing-12-month net income margin of 6.73% is 47.5% higher than the industry average of 4.56%.
In terms of forward non-GAAP P/E, the stock is trading at 7.04x, 54.3% lower than the industry average of 15.48x. Its forward EV/Sales of 0.42x is 65.7% lower than the 1.21x industry average. Furthermore, VIPS’ forward EV/EBITDA ratio of 4.84x is 50.5% lower than the industry average of 9.78x.
For the fiscal third quarter, which ended on September 30, 2023, VIPS’ net revenues increased 5.3% year-over-year to $3.12 billion, while its non-GAAP income from operations rose 33% from the year-ago value to $284.16 million.
Moreover, the company’s attributable non-GAAP net income and attributable non-GAAP net income per share improved by 15.5% and 30.4% from the prior-year quarter to $252.34 million and $2.28, respectively.
The consensus revenue estimate of $4.66 billion for the fiscal fourth quarter (ended December 2023) represents a 1.2% year-over-year improvement. The consensus EPS estimate of $0.71 for the same period reflects a 34.3% year-over-year rise.
Additionally, the company surpassed its revenue estimates in three of the trailing four quarters and EPS estimates in each of the trailing four quarters, which is impressive.
VIPS’ shares soared 5.1% over the past three months to close the last trading session at $16.12.
It’s no surprise that VIPS has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, Momentum, Sentiment, and Quality. Out of 39 stocks in the same industry, it is ranked #5.
In addition to the POWR Ratings we’ve stated above, we also have VIPS’ rating for Stability. Get all VIPS ratings here.
What To Do Next?
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VIPS shares fell $0.55 (-3.41%) in premarket trading Wednesday. Year-to-date, VIPS has declined -12.33%, versus a -0.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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