Stocks have been on quite the run this year. The S&P 500 is up 19%, meanwhile the Dow Jones Industrial Average is up 17%. However, the NASDAQ-100 has both of them beat as it's up more than 21% on the year. Will the markets be able to keep the run going?
As we get closer to the end of the year, money managers, institutions as well as regular investors will probably start taking some money off the table in order to protect profits. I mean why wouldn't they after a remarkable run in the stock market this year. This is why I doubt that the markets will be able to continue at the pace that it has been on.
As we head towards the end of the year, which stocks still have great upside and which stocks have already maxed out? Let's find out as we take a look at some Chinese stocks.
Investors should remember that there are some risks associated with looking for bargains in China due to scams and company deception in the past. When you come across stocks that are cheap, sometimes they are cheap for good reason. However, that isn't always the case and if you know where to look, you will still be able to find great values in China.
One of the things to look at when looking for "bargain" companies is to look at the P/E ratios of both forward and trailing. So how does one figure out these P/E ratio's? For a trailing ratio simply divide the market price of the shares by the earnings per share (EPS) of a company.
Market Value per Share
Earnings per Share
Example 1: If XYZ company is currently trading at $40 a share and the total earnings over the last 12 months were $1.00 per share, the P/E ratio for the stock would be 40.00 ($40/$1.00).
For a forward P/E ratio simply divide the market price of the shares by the expected earnings of a company.
Example 2: If XYZ company is currently trading at $40 a share and the expected earnings over the next 12 months are to be $2.00 per share, the forward P/E ratio for the stock would be 20.00 ($40/$2.00).
- The average P/E ratio in the stock market is around 25.
- Companies that lose money ever quarter do not have a P/E ratio.
- A higher P/E ratio suggests higher expectations of a company.
Many investors associate Dangdang as the Amazon of China because of its marketplace program similar to that of Amazon.com (AMZN). Even though Dangdang has similarities of Amazon, it is not a true representation of it.
Dangdang's stock has made huge moves this year as its more than doubled. One of the big reasons for the turnaround has been the fact that the company has been growing profits as well as its margins. Even though Dangdang has yet to break out of the red, it's showing positive signs that it looks to break into the black sooner than most expect.
Dangdang has no trailing or forward P/E ratio so we cannot compare it to other competitors. However, investors should remember that Amazon has no trailing P/E ratio either because it has yet to break completely out of the red. That hasn't stopped investors from pushing the stock price up 333% over the last couple of years. I like Dangdang and feel that it has great potential going forward.
NQ Mobile (NQ)
NQ Mobile, has been one of Wall Street's hottest stocks this year as shares are up 286% since the start of the year. So what exactly does the company do? NQ Mobile provides mobile Internet services in the areas of mobile security, privacy, productivity, personalized cloud, and family protection.
The stock has exploded this year because everything that could go right has gone right for NQ Mobile. Mobile security is growing by leaps and bounds as the world shifts to the mobile world. NQ Mobile has positioned itself nicely and is not just limited to China, but is a worldwide company.
Last quarter NQ Mobile crushed earning estimates and easily beat Wall Street's expectations as it beat both the top and bottom lines with revenue of 41.4 million and EPS of 26 cents.
Just this week NQ Mobile issued a press release saying that it expects revenues to exceed it's top end guidance for the upcoming quarter. Talk about bullish. So how does NQ compare to some of its peers?
|NQ Mobile||Qihoo||AVG (AVG)||Industry|
As we can see NQ mobile sits right between these companies. Looking at the industry we can see that even though NQ has a higher P/E ratio, the forward P/E ratio comes in quite lower than most, signaling that NQ is still a cheap stock for the growth that it has and will be giving investors.
Qihoo provides Internet and mobile security products in the Peoples Republic of China. Over the last year Qihoo has started competing against Baidu (BIDU) in the search engine business. Qihoo has already picked up a considerable amount of the market share thanks in large part to its hundreds of million of users. So how does Qihu compare to some of its peers?
As we can see Qihoo sits on the outside to these companies who have a lower P/E. However, a lower P/E doesn't always equal a better investment. Qihoo is growing faster than most of its peers. Usually a high P/E suggests that investors expect major growth in the future. If a company cannot deliver the high growth that investors expect, than these type of stocks will get crushed by the market. However, If the company can deliver high growth, than these stock will continue to make new highs and reward investors.
Sina along with its subsidiaries operates as an online media and mobile value-added services (MVAS) in the People's Republic of China. It provides advertising, non-advertising, and services through SINA.com, Weibo.com and SINA Mobile.
Sina had a rocky start at the beginning of the year, but has since catapulted itself as shares are now up 64% year to date. It all started back on April 29, 2013 when it was announced that Alibaba invested $586M for an 18% stake in Sina's microblogging service Weibo. Since then shares have never looked back.
What has also helped fuel the run this year have been Sina's stronger than expected earning results. That along with Twitter's rumored IPO has caused shares to continue to increase. So how does Sina stack up against some up it's peers?
Sina does not have a trailing P/E ratio because it has just recently been able to get out of the red and into the black. As we can see Sina has the highest forward P/E ratio. Investors no doubt have high expectations for Sina. However, if Sina cannot deliver solid growth and good results over the next quarter or so, shares could come falling back down.
Sohu provides a variety of things such as gaming, online search, media, and mobile services in the People's Republic of China.
Sohu, like most Chinese stocks, has had a nice run this year as shares are up more than 50% year to date. Some of the reasons for the pop in share price has been because of Sohu's latest deal with Chinese e-commerce provider Tencent Holdings.
Under the terms of the deal, Tencent invested $448 million in cash in order to acquire a 36.5% stake in Sogou (Sohu's search business). This values Sogou well over one billion dollars.
The Sohu-Tencent partnership will help improve Sogou's competitive position against market leaders Baidu, and Qihoo. Sohu and Qihoo were actually in talks regarding the sale of Sogou. However, talks broke down and Tencent made the most of its opportunity.
Tencent's huge user base should help Sohu's mobile search traffic since Sogou will become the default search engine for Tencent's mobile browser. Tencent will also promote Sogou's mobile input method on social platforms such as QQ and WeChat. So how does Sohu stack up against it competitors?
As we can see Sohu falls right in between its peers. With shares trading around $73 Sohu has a market cap close to 2.83 billion. While I do like the services that Sohu provides, I feel that shares are most likely on the verge of maxing out soon unless another catalyst comes along shortly. Earnings are just around the corner though which might give investors incentive to stick around.
Vipshop is China's leading online discount retailer. One of the reasons why Vipshop has done so well is because of the lack of competition they face. China is a huge market and Vipshop is taking advantage of that.
Over the last year, shares of Vipshop are up over 700%. So why are investors so eager to put their money on Vipshop?
Vipshop continues to deliver strong earnings every quarter. Last quarter Vipshop beat estimates on both the top and bottom lines as revenue soared 160% to $351 million. For the upcoming quarter, Vipshop expects revenues between US$365 million and US$370 million, representing a year-over-year growth rate of approximately 134% to 137%. So how does Vipshop compare to its peers?
Like I said before, Vipshop does not have much competition so its hard to rate them against other companies like Dangdang which do not have P/E ratio's yet. As we can see by the industry and sector, Vipshop is not far behind. Because of its high P/E ratio it must continue to deliver strong results. So far the company has done that and the stock has rewarded investors. I think Vipshop will continue to deliver great results in the future.
Youku Tudou, (YOKU) is often known by many as the YouTube of China. Youku is actually China's leading Internet television company with hundreds of millions of users.
Last year, Youku acquired Tudou in a one billion dollar deal. While the deal was very expensive, Youku was able to combine the No. 1 and No. 2 online video companies making them the dominant player in the field. This has helped Youku take control of some of its content costs while generating more revenue and expanding margins. Analysts expect revenue to surge nearly 50% next year.
Because Youku is still in the red, it has no trailing or forward P/E ratio. While we cannot compare Youku to other companies and competitors at this time, investors following Youku should feel confident seeing the positives changes taking place. While the company may not have explosive numbers this upcoming quarter, the future does look bright for this company.
YY (YY) Inc.
YY, operates an online social platform in the Peoples Republic of China. The company focuses on gaming along with web-chat platforms that allow users to become overnight internet sensations. YY is unique in that it lets its members showcase what they can do in order to attract fan followings. YY has gained in popularity with hundreds of millions of users.
YY has continued to crush earnings estimates quarter after quarter. During the last earnings announcement CEO David Xueling Li, said:
"We are very proud of our strong operational performance this quarter, which lead to robust top line growth and continued margin expansion. Driven by 170% year-over-year growth in the number of paying users on our YY Music platform, revenues exceeded our expectations and our total paying user numbers grew more than 50% year-over-year. These results demonstrate the unique and growing value proposition that our platform provides our large audience base, as more Chinese internet users increasingly embrace real-time online interactive entertainment."
I like YY going forward and feel that it will be able to continue to deliver the high expectations that investors have for it. Shares are up 300% on the year and for good reason. I feel that YY has a bright future and will continue to reward investors.
The Bargain Hunting Chart
|Trailing P/E||Forward P/E|
Current Year Sales Growth Est
|Earnings History Surprise (last 4Q's)||Mean Price Target|
* Figures are from Yahoo!Finance, Scottrade, MSN & CNN Money
Chinese stocks have not been making waves with just their stock prices lately, but striking major deals along the way. Big companies such as Baidu, Tencent, and Alibaba have been teaming up with companies such as Sina and Sohu, showing that consolidation and deals are still out there and more may be coming soon, creating even better buying opportunities.
While most of these stocks are good buys, some of them are definitely better than others. However, I will let you decide which stocks are better short and long term. I hope this has helped you narrow some decisions while bargain hunting in China.
Investors are always reminded that before making any investment, you should do your own proper diligence on any stock mentioned in this article and to make sure you are comfortable with your investment strategy. Have a great day and as always, I look forward to hearing your thoughts or questions that you might have.