Momo Inc (ADR) (MOMO) stock is one of the market’s bigger gainers on Friday, with shares jumping more than 8% in early trading. Those gains have cooled off as the day progressed, but the theory behind today’s rally is sound.
In fact, for someone who generally avoids Chinese stocks like the plague, I’m warming up to MOMO stock. Sometimes called the “Chinese Tinder,” Momo has a couple really powerful trends behind it: The growing Chinese middle class and the increased popularity of online dating.
But that’s not the only reason to think today’s MOMO stock rally has legs longer-term.
MOMO Stock: BABA Wants It
If you’ve been following Momo, you know-know (sorry, had to do it to ’em!) that Alibaba Group Holding Ltd (BABA) is interested in buying the company out. In early April, Alibaba announced it was joining a group of interested buyers, sending shares up 30% overnight.
The proposed buyout would be for $18.90, a 66% premium to the stock’s closing price yesterday. If the huge premium raises eyebrows, it should. MOMO stock was trading around $16.50/share for about a month after BABA’s announcement, until Chinese regulators announced they were investigating U.S.-listed companies trying to go private and then re-launch on China exchanges for higher valuations.
That was seen as a direct threat to BABA’s plans for MOMO stock, and perhaps could spell the death of the deal.
But that’s wildly speculative, and there are compelling technical reasons to like MOMO stock right here. Namely, we’ve seen strong resistance at the $11/share level in recent months:
Oh, and let’s not forget the friggin’ underlying business itself! Don’t you want to own a piece of MOMO stock — the “Chinese Tinder”? Heck, I want to own a piece of the American Tinder, so much so that I actually decided to put my money where my mouth was, and after Match Group Inc‘s (MTCH) phenomenal Q1, I ponied up and bought MTCH stock.
Online dating isn’t going anywhere, and the opportunity to invest in it is like the opportunity to invest in human nature, love, and technology all at once. Call me corny, but I think that’s pretty cool.
Looking at the financials, MOMO looks like an even better investment. Earnings per share is expected to go from 15 cents in 2015 to 26 cents this year to 67 cents in 2017. That’s EPS growth of 73% this year and 157% next year. Revenues are expected to soar nearly 80% annually for the next two years.
It’s admittedly risky to invest in MOMO stock, an up-and-coming Chinese company with a short track record and exposure to overzealous Chinese regulators. But at these levels, I think it’s worthy of a small wager at least — the potential returns are too high to ignore.
As of this writing, John Divine was long MTCH stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
