Chinese Stocks To Buy Now - Part 2: Momo

Aug. 25, 2018 7:58 AM ETHello Group Inc. (MOMO)71 Comments

Summary

  • An introduction to this Chinese mobile app.
  • An overview of the last earnings that show the high growth of this company.
  • The great potential of Momo and Tantan, the Chinese Tinder that was acquired by Momo.
  • Momo's management has a long-term vision, which is sunshine and roses to me as a long-term investor.
  • The company's valuation is very attractive and so it could be a big winner over the long term.

Introduction

On July 20th, 2017, I recommended Momo (NASDAQ:MOMO) as a potential multibagger in my series here on Seeking Alpha. The stock has underperformed the market in its stock price, and it is even down versus then, but it has actually outperformed the market as a business.

ChartMOMO data by YCharts

That is why I think Momo is a very attractive stock to buy now. The earnings that were just released show again that Momo is a gem.

The company

(Momo Logo - Source: Upi.com)

A quick introduction to Momo for those who don't know it yet. The company made its IPO on the Nasdaq on November 7, 2014. Its main product is a mobile-based social networking platform, based on location and interests. Basically, this means that you can meet people who are near you and/or have the same interests as you. That was and is considered to be a hook-up app too.

But Momo has much more: chatrooms, karaoke, social groups, social mobile games, etc. An important acquisition was made in March of 2018: Tantan, the Chinese version of Tinder.

Q2 2018 results

Momo had great results again: the non-GAAP EPS was $0.66, beating analysts' estimates by $0.05, or 7.5%, so it looked only natural that the market adjusted the stock price of Momo by 8% as well. The non-GAAP EPS was up from $0.35 last year, an increase of 88.5%. GAAP EPS was $0.55, up from $0.29 in Q2 2017, an increase of 89% YoY.

Revenue, which is in my opinion a lot more important for growth stocks than earnings, was up 58.3% YoY to $494.27M, beating analysts' forecasts by $14.5M or 3%.

But what the market reacted probably the most to was the updated revenue guidance which was increased to $525M to $540M, while the consensus was $516.61M.

This article was written by

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Potential Multibagger helps you find multibaggers early on.

I am a 46-year old investor with a long-term perspective and that means I mainly think about the future when I invest. I try to uncover multibaggers early on. Picks include Shopify ($7.78), Crowdstrike ($98), The Trade Desk ($19.5), Cloudflare ($39) etc.

The strategy is simple but not easy: find disruptors that have a very high quality and hold them for a very long period. I try to identify stocks that have the potential to go up 1,000% and more over the next 10 years. I do deep research for the stocks that I pick to know if the quality is high indeed. 

I do not care about what my selection of stocks will do next year, but what the result will be over the long term. To paraphrase Warren Buffett: "You should only have stocks that you would feel comfortable having if the stock market closed up for 10 years."

I appreciate your comments because I believe I can learn a lot from your feedback and I believe in the wisdom of crowds.

Disclosure: I am/we are long MOMO, FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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