58.com (WUBA) has been on a hot streak since going public. I have been looking into its growth prospects and valuation recently, and it seems that 58.com is among the most expensive stocks in China's internet space. The high growth that the company is delivering comes at a steep price and we might get a better buying opportunity in the next couple of months. The company reported Q2 earnings and revenue ahead of analyst estimates, but the Q3 guidance was disappointing, as the slowdown in China's housing market is expected to have a negative effect on 58.com's revenue growth in the following months/quarters. The uncertainty about the housing market and the prospects of slowing growth in the future have brought the share price down in the last couple of weeks. I believe that there is more potential downside from here, especially when we compare 58.com's valuation to most of its peers, and I would look for a better entry in the following months. I will examine the potential valuation scenarios in the next two years to get a better picture of the reward/risk ratio in these scenarios. That being said, my base case price target is $55, and the price could reach $69 in the bullish scenario. The worst case scenario is a 50% correction from the current price, but the $40 level might be a strong area of support since Tencent (OTCPK:TCEHY) bought its stake at that price, and the company's balance sheet is in better shape after the Tencent investment. Tencent will also be a powerful ally and should help 58.com's market penetration and growth in the future.
Where is the growth coming from?
58.com is often called the "Craigslist of China". The company operates the largest online marketplace serving local merchants and consumers in China, as measured by monthly unique
