According to Statista, as of 2022, the famous Chinese internet retail company Alibaba Group Holding Limited’s (BABA) market value declined to $237.80 billion, down nearly 75% from its peak.
Moreover, the stock trades at a premium to its peers. In terms of its forward GAAP P/E, BABA’s 28.79x is 88.7% higher than the 15.26% industry average. Its forward EV/Sales of 1.78x is 47.8% higher than the 1.21x industry average.
Following a challenging year for economic growth for China with strict COVID policies disrupting business, trade, investment, and the overall economy, the government has rolled back its restrictions.
As the country ends its zero-COVID policy and reopens its economy, with short-term data indicating that its economic situation might get better sooner than expected, conditions are looking hopeful.
Goldman Sachs Group Inc. (GS) strategists see an economic shift from “reopening to recovery,” with Chinese stocks set to surge as much as 24% by the end of 2023. The signs of a recovery in the economy have sparked investors’ interest and favorability.
Amid this backdrop, investors could buy fundamentally strong China-based companies Hello Group Inc. (MOMO) and China Automotive Systems, Inc. (CAAS) instead of BABA due to its high valuation.
Hello Group Inc. (MOMO)
Headquartered in Beijing, China, MOMO provides mobile-based social and entertainment services. The company operates the Momo platform, which includes its Momo mobile application, as well as various related properties, features, functionalities, tools, and services.
In terms of forward non-GAAP P/E, MOMO’s 7.32x is 56.2% lower than the 16.69x industry average. Likewise, its 3.37x forward EV/EBITDA is 60.7% lower than the 8.59x industry average.
MOMO's income from operations for the fiscal third quarter that ended September 30, 2022, increased 12.9% year-over-year to RMB 520.13 million ($75.67 million). The company’s net income attributable to the shareholders of MOMO increased 11.8% year-over-year to RMB 450.84 million ($65.59 million).
Additionally, its net EPS attributable to ordinary shareholders came in at RMB 1.10, representing a 14.6% increase from the prior-year quarter.
Analysts expect MOMO’s EPS for the quarter that ended December 31, 2022, to increase 29.1% year-over-year to $0.28. It has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. The stock has gained 107.1% over the past six months to close the last trading session at $9.28.
MOMO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the China industry, it is ranked #12 out of 48 stocks. It has an A grade for Value and a B for Quality. In total, we rate MOMO on eight different levels. Beyond what we stated above, we have also given MOMO grades for Growth, Momentum, Stability, and Sentiment. Get all MOMO ratings here.
China Automotive Systems, Inc. (CAAS)
Headquartered in Jingzhou, China, CAAS manufactures and sells automotive systems and components. It produces rack and pinion power steering gears for cars and light-duty vehicles; integral power steering gears for heavy-duty vehicles; power steering parts for light-duty vehicles; and sensor modules, among other steering systems and parts.
In terms of forward non-GAAP P/E, CAAS’ 12.31x is 14.6% lower than the 14.41x industry average. Likewise, its 5.12x forward EV/EBITDA is 47.4% lower than the 9.74x industry average.
On November 29, 2022, CAAS announced its strategic partnership with BYD for future autonomous driving. CAAS’ chairman, Mr. Hanlin Chen, stated, “Together with our leadership in electric power steering systems, electric motors, and electric control software, we provide a total solution to empower leading OEMs like BYD to introduce state-of-the-art experiences to the marketplace."
For the fiscal third quarter that ended September 30, 2022, CAAS’ net product sales increased 26.8% year-over-year to $137.21 million. The company’s net income attributable to the parent company's common shareholders came in at $7.47 million, compared to a $317 million loss from the year-ago quarter.
Its net EPS came in at $0.24, representing a significant increase from a loss per share of $0.01 from the prior-year quarter.
CAAS’ EPS and revenue for the fiscal year 2022 are expected to increase 72.2% and 8.3% year-over-year to $0.62 and $539.23 million, respectively. The stock has gained 163.1% over the past nine months to close the last trading session at $7.63.
It is no surprise that CAAS has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It is ranked #2 in the same industry. Moreover, it has an A grade for Value and Sentiment and a B for Growth.
To see the additional ratings of CAAS for Momentum, Stability, and Quality, click here.
Consider This Before Placing Your Next Trade…
We are still in the midst of a bear market.
Yes, some special stocks may go up. But most will tumble as the bear market claws ever lower.
That is why you need to discover the brand new “Stock Trading Plan for 2023” created by 40-year investment veteran Steve Reitmeister. There he explains:
- Why it's still a bear market
- How low stocks will go
- 9 simple trades to profit on the way down
- Bonus: 2 trades with 100%+ upside when the bull market returns
You owe it to yourself to watch this timely presentation before placing your next trade.
MOMO shares were trading at $9.18 per share on Wednesday afternoon, down $0.10 (-1.08%). Year-to-date, MOMO has gained 2.23%, versus a 4.65% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
2 China Stocks That Could Be Better Buys Than Alibaba in 2023 StockNews.com
