In Monday’s Sector Leaders column, IBD presented reasons why Momo (MOMO) has been generally superb among China growth stocks since its Nasdaq debut in December 2014. The stock continues to reflect bullish demand among the money manager crowd.
How else should an investor assess the investment climate for this fast mover?
One suggestion: Study its industry peers closely.
In most cases, top leaders in the market move up together with a few high-quality stocks in the same industry group or broader sector. This is a very important concept: IBD’s research has found that up to half of a great stock’s performance is tied to the performance of its own industry group and broad industry sector.
That said, it may be worthwhile to keep an eye on Weibo (WB), Tencent (TCEHY), Baidu (BIDU), YY (YY), Huya (HUYA) and iQiyi (IQ). All six of these companies are leaders within the Chinese ADR and ADS vehicles that trade on the U.S. financial exchanges. And they all thrive on the internet. China is the No. 1 online market.
Most of these firms, including Beijing-based Momo, belong to the market-leading Internet-Content industry group. IQiyi is part of the Leisure-Movies industry group. Both groups rank within the top 20 for six-month relative price performance. That’s a plus.
So, how are these stocks’ individual chart health? For now, they get a mixed diagnosis.
Which Ones Are In Basing Mode?
Among the six Momo peers, Tencent and Weibo are perhaps struggling the most. The former lies 20% below its 52-week peak and has a dismal 55 Relative Price Strength Rating. The latter is having a rougher time, treading 36% beneath its 52-week high. Weibo’s 17 RS Rating, as noted in IBD Stock Checkup, is the worst of the bunch. The 17 rating means the social media giant is doing better than just 17% of all companies in IBD’s database over the past 12 months.
Weibo ushered a sell signal when it flipped below its 50-day moving average in heavy volume on March 22. Since then, the stock has failed in numerous attempts to climb back above the important medium-term level of support and resistance. As can be seen in a MarketSmith daily chart, the 50-day moving average (drawn in red) has fallen so sharply that it’s now crossed below the longer-term 200-day moving average.
Baidu is holding up much better, even though the big-cap internet search giant has made virtually no price progress since peaking in October of last year. Now trading just 4% below a new all-time high of 284.22 on May 16, Baidu has formed an eight-week double bottom that has a 273.71 buy point.
That base sits right next to the longer amorphous basing pattern. Sometimes it takes a second or even third base-building phase before a quality stock presents a good new breakout opportunity.
The two newbies in the group, Huya and iQiyi, have corrected normally since going on big runs following successful new IPOs.
Huya debuted on May 11 at 12 a share, then rocketed up 323% to an all-time peak of 50.82. So, the stock’s subsequent 44% slide in three weeks was definitely steep. But it’s not surprising, given the new IPO’s huge run-up.
On The Business Side
Momo has 103.3 million active users in its smartphone-based social platform as of the end of the first quarter. YY is even bigger, with more than 300 million users. YY offers video streaming and live chat features for concerts, fashion shows and sporting events.
All six companies in addition to Momo have substantial revenues, ranging from $328 million last year for Huya to $12.6 billion for Baidu and $35 billion for Tencent. Only Huya and iQiyi have yet to score an annual profit.
Momo saw its Q1 revenue spike 64% to $435.1 million, a quarterly record. As noted in a May 29 Tech section article at Investors.com, the company in late May estimated Q2 revenue to hit a range of $470 million to $485 million, well above the consensus view of $429 million. The Street’s current view: $481.6 million, up 54%.
