2 China Stocks It's Time to Check Out
China’s economic growth fell to near-historic lows as COVID-19 took a bite of households and businesses, intensifying the high cost of zero-tolerance policies that Beijing abruptly abandoned at the end of 2022. According to the National Bureau of Statistics, China’s GDP grew 3% in 2022, missing the government’s target of 5.5%.
However, strong consumer spending and a rebound in travel during the country’s week-long Lunar New Year holidays have boosted investor sentiment. Meanwhile, China is rolling back severe COVID restrictions rapidly after the Center for Disease Control and Prevention said critically ill cases in China are down 72% from a peak early this month.
After recent gains, Robert Buckland, chief global equity strategist at Citi Investment Research, said that the Chinese market no longer seems 'uninvestable.’ He added, "What's going on in China looks like it's not even a U-turn on COVID, it's a V-turn on COVID."
With an end to lockdowns and other severe steps, investors are looking to brighter days ahead. Therefore, it could be wise to add fundamentally sound Chinese stocks Hello Group Inc. (MOMO) and Tarena International, Inc. (TEDU) to your watchlist now.
Hello Group Inc. (MOMO)
Headquartered in Beijing, China, MOMO provides mobile-based online social and entertainment services. The company operates two platforms: Momo, a social search and instant messaging mobile application, and Tantan, a social and dating application.
For the fiscal third quarter that ended September 30, 2022, MOMO’s total cost and expenses decreased 17.6% year-over-year to RMB2.73 billion ($402.94 million). Its income from operations was RMB520.13 million ($76.65 million), up 12.9% year-over-year. The company’s net income increased 13.6% from the year-ago value to RMB449.87 million ($66.30 million). In addition, its net income per share was RMB1.10, an increase of 14.6% year-over-year.
In terms of forward non-GAAP P/E, MOMO is trading at 8.68x, which is 49.3% lower than the industry average of 17.12x. Likewise, its forward EV/Sales and EV/EBIT multiples of 0.66 and 4.09 are 67.6% and 73.5% lower than the industry averages of 2.05 and 15.44, respectively.
Analysts expect MOMO’s revenue and EPS for the current fiscal year (ending December 2023) to increase 1.6% and 4.6% year-over-year to $1.90 billion and $1.34, respectively. Moreover, the company surpassed the consensus EPS estimates in three of the trailing four quarters, which is impressive.
Shares of MOMO have gained 153.4% over the past nine months to close the last trading session at $11.15.
MOMO’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It has an A grade for Value and a B for Quality. It is ranked #8 in the China industry. Click here to see the additional ratings of MOMO for Growth, Momentum, Stability, and Sentiment.
Tarena International, Inc. (TEDU)
TEDU provides professional education services through full-time and part-time classes under the Tarena brand in China. It operates through two segments: Adult Professional Education and Childhood & Adolescent Quality Education Services. The company is headquartered in Beijing, China.
On November 28, 2022, TEDU’s board of directors authorized a new share repurchase program over the next twelve months. As per the program, the company is authorized to repurchase up to an aggregate value of $3 million of its Class A ordinary shares (including in the form of ADS) during the 12 months beginning November 28, 2022.
On top of increasing the intrinsic value of the holdings of existing shareholders, the new share repurchase program also underscores the management’s confidence in TEDU’s business prospects.
For the fiscal third quarter that ended September 30, TEDU’s net revenues increased 4.6% year-over-year to RMB643.31 million ($94.85 million), while its gross profit rose 13.1% year-over-year to RMB354.23 million ($52.20 million).
The company’s non-GAAP operating income and net income came in at RMB30.21 million ($4.45 million) and RMB37.16 million ($5.48 million) versus a non-GAAP operating loss and a net loss of RMB84.39 million ($12.44 million) and RMB90.53 million ($13.34 million), in the previous-year quarter, respectively.
In addition, its non-GAAP net income per ADS came in at RMB3.23, compared to a non-GAAP net loss per ADS of RMB7.84 in the same period the prior year.
In terms of trailing-12-month EV/EBITDA, TEDU is trading at 5.42x, which is 45.8% lower than the industry average of 9.99x. Also, the stock’s trailing-12-month Price/Sales of 0.17x is 81.7% lower than the 0.94x industry average.
Over the past year, the stock has gained 186.2% to close its last trading session at $5.61.
TEDU’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It also has an A grade for Growth and a B for Value and Quality. Within the same industry, it is ranked first. To see the additional POWR Ratings of TEDU for Momentum, Stability, and Sentiment, click here.
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MOMO shares were trading at $10.32 per share on Monday afternoon, down $0.83 (-7.44%). Year-to-date, MOMO has gained 14.92%, versus a 5.14% rise in the benchmark S&P 500 index during the same period.