China's economic growth is primarily being driven by a robust resurgence in domestic consumption, exemplified by record-high figures for travel and spending during the recent Lunar New Year holidays, indicating a strong recovery trajectory post-pandemic.
In this context, keeping an eye on robust Chinese stocks Sohu.com Limited (SOHU), Alibaba Group Holding Limited (BABA), and JD.com, Inc. (JD) could be wise. Before delving into the featured stocks, let's examine the dynamics of the China industry.
Recently, China reported record-high figures for domestic travel and spending during the just-concluded Chinese Lunar New Year holidays, with both statistics also largely exceeding those of the same period in 2019 before the outbreak of the COVID-19 pandemic, further indicating that recovery in consumption is picking up pace.
The travel and spending boom during the eight-day holidays underlined improved sentiment among Chinese consumers. It fully illuminated the vitality and vast potential of China's consumption market, the most significant economic growth driver, which helps brighten the outlook for the nation’s economic recovery in 2024 and beyond.
The number of trips made during the holidays represented a 19% growth from the level during the same period in 2019 before the pandemic, and total spending increased by 7.7% from that of the same period in 2019, the Ministry of Culture and Tourism (MCT) data showed.
Behind the record-high headline figures are bustling scenes across the country - packed roads, airports, tourist attractions and movie theaters. South China's Hainan Province actually had to add additional flights to carry visitors home as tickets were sold out and prices skyrocketed.
Jiang Yiyi, deputy head of the School of Leisure Sports and Tourism at Beijing Sport University, said the rebound in outbound tourism was supported by factors such as visa-free policies as well as the economic recovery.
That being said, the International Monetary Fund has raised its global growth forecast for 2024, pointing to the better-than-expected performance of the Chinese economy last year, as Asian emerging and developing markets remain the driving force. China is projected to grow 4.6% in 2024, reflecting an upward revision of 0.4 points.
Concurrently, the Chinese Academy of Sciences (CAS) expects the world’s second-largest economy to stabilize this year. China’s economy could grow by 5.3% this year, according to the top government think tank. Furthermore, Swiss investment bank UBS Group AG (UBS) predicts China’s economy will grow by 4.4% in 2024.
In light of these encouraging trends, let’s look at the fundamentals of the three China stocks.
Stock #3: Sohu.com Limited (SOHU)
Headquartered in Beijing, China, SOHU provides comprehensive online news, information, and content services via mobile applications alongside PC and mobile gaming. The company extends its offerings with paid subscriptions, interactive broadcasting, and sublicensing of acquired video content to external entities.
In terms of forward Price/Sales, SOHU is trading at 0.54x, 57.3% lower than the industry average of 1.26x. Additionally, the company’s forward Price/Book of 0.31x is 84.7% lower than the 2.04x industry average.
For the fiscal 2023 third quarter that ended September 30, 2023, SOHU’s income before income tax expense came in at $1.28 million, compared to a loss of $5.37 million in the prior year’s period.
Moreover, net income and net income per share/ADS attributable to SOHU stood at $21.37 million and $0.63, respectively, compared to a loss and loss per share of $21.58 million and $0.63.
Shares of SOHU have gained 1.2% over the past five days to close the last trading session at $9.55.
SOHU’s sound outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
SOHU has a B grade for Value and Sentiment. It is ranked #16 out of 41 stocks within the B-rated China industry.
In addition to the POWR Ratings I’ve highlighted, you can see SOHU’s Growth, Momentum, Stability, and Quality ratings here.
Stock #2: Alibaba Group Holding Limited (BABA)
Based in Hangzhou, China, BABA furnishes merchants and businesses with technology infrastructure and expansive marketing channels for enhanced user and customer engagement. Its segments include China Commerce; International Commerce; Local Consumer Services; Cainiao; Cloud; Digital Media and Entertainment; and Innovation Initiatives and Others.
In terms of forward non-GAAP P/E, BABA is trading at 8.47x, 47% lower than the industry average of 15.97x. Its forward EV/Sales of 1.11x is 11% lower than the 1.25x industry average. Moreover, the company’s forward EV/EBITDA of 5.34x is 46.7% lower than the industry average of 10.01x.
For the fiscal 2023 third quarter that ended December 31, 2023, BABA’s revenue increased 5.1% year-over-year to $36.67 billion. Its adjusted EBITDA marginally grew from the year-ago value to $8.39 billion. Moreover, as of December 31, 2023, the company’s current assets amounted to $113.70 billion.
Analysts expect BABA’s revenue to increase 5.9% year-over-year to $130.78 billion for the fiscal year ending March 2024. The company’s EPS for the current year is estimated to rise 12.5% from the prior year to $8.73. Moreover, the company surpassed the consensus EPS estimates in three of the four trailing quarters.
The stock has gained 5% over the past month to close the last trading session at $73.91.
BABA’s positive fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
BABA has a B grade for Momentum and Quality. It is ranked #13 out of 41 stocks within the China industry.
Click here to access additional BABA ratings for Growth, Value, Stability and Sentiment.
Stock #1: JD.com, Inc. (JD)
Based in Beijing, China, JD specializes in computers, communication, electronics, home appliances, and general merchandise. Additionally, it offers online marketplace services, marketing solutions, and omni-channel support for both customers and offline retailers, along with online healthcare services.
In terms of forward non-GAAP P/E, JD is trading at 8.14x, 49% lower than the industry average of 15.97x. Its forward EV/Sales of 0.16x is 87.5% lower than the 1.25x industry average. Furthermore, the company’s forward EV/EBITDA of 3.98x is 60.2% lower than the industry average of 10.01x.
For the fiscal 2023 third quarter that ended September 30, 2023, JD’s non-GAAP EBITDA increased 12.4% year-over-year to $1.77 billion. Its free cash flow grew 253.3% from the year-ago value to $1.13 billion.
Additionally, non-GAAP net income attributable to the company’s ordinary shareholders and non-GAAP net income per share rose 5.9% and 6.7% from the prior year’s period to $1.46 billion and $0.46, respectively.
Analysts expect JD’s revenue to marginally increase year-over-year to $150.62 billion for the fiscal year that ended December 2023. The company’s EPS for the same year is expected to grow 16.8% from the previous year to $2.98. Furthermore, the company topped the consensus EPS estimates in all four trailing quarters.
JD’s shares have gained 4.5% over the past five days, closing the last trading session at $24.22.
JD’s robust prospects are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
JD has a B grade for Growth and Value. It is ranked #9 out of 41 stocks within the same industry.
Click here to access the additional JD ratings (Momentum, Stability, Sentiment, and Quality).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
BABA shares were trading at $73.91 per share on Monday morning, up $0.09 (+0.12%). Year-to-date, BABA has declined -4.64%, versus a 5.09% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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