Weibo Corp (ADR) Stock Is Still a Bargain by Many Measures

The surge in Weibo Corp (ADR) (NASDAQ:WB) stock has paused. Despite strong growth numbers, WB stock fell back when the price reached overbought territory on the RSI indicator. However, with the pause, the RSI has come back to Earth. Moreover, the company’s revenue and earnings growth rates exceeding 50% per year remain.

Given the high growth of WB stock, the lower price creates a lucrative buying opportunity to profit from what many regard as the Facebook and Twitter of China.

WB Stock Struggles Despite Its Large, Protected Market

Much like Baidu Inc (ADR) (NASDAQ:BIDU) benefits from the Chinese government keeping Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) out of the country, Weibo enjoys the same level of government protection from Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR). With China representing one-sixth of the world’s population, this umbrella leaves Weibo a large market to dominate.

Weibo currently has 376 million monthly users. This user base has grown by 15 million in each of the previous two quarters, representing an annual increase in users of around 18%. Even if rumors that Facebook will enter China in 2018 prove true, Weibo will enjoy a substantial head start.

However, despite this market dominance, the stock has paused over the last four months. WB stock reached $100 per share for the first time in September. It rose further, to over $120 per share, in November, before hitting a high RSI and falling back below the $100 level by early December. The stock currently trades at around $105 per share.

Despite the Pause, Room for Growth in WB Stock Remains

Our own Luke Lango calls the selloff, “noise in an otherwise very strong secular growth stock.” I agree and think this pause creates a huge buying opportunity.

Both revenue and profit growth remain phenomenal for WB stock. Although revenue growth has naturally slowed with the company’s growing size, it remains greater than 50% per year. Further, since reaching profitability in 2015, earnings have increased at similarly high rates. Analysts forecast profit at around $1.50 per share for 2017, more than triple the 2016 profit of 48 cents per share. They also predict earnings per share (EPS) increases of over 76% for 2018 and 56% for 2019.

The current PE ratio stands at almost 90. However, given the growth, the consensus forward PE comes in at 40. This places the PEG ratio at just over 0.5 based on future earnings. Given these metrics, the stock will have to reach a value of over $260 per share to reach the S&P 500 average PEG ratio of 1.33.

Further, the company’s minuscule market cap compared to Facebook’s also shows the growth potential of WB stock. Weibo’s current market cap stands at around $22 billion. Facebook, with about six times as many users, has more than 23 times the market cap ($510 billion). WB would have to rise by fourfold to match Facebook’s market cap per user.

Concluding Thoughts on WB Stock

The pause in the WB stock price gives investors a golden opportunity to buy into China’s dominant social media platform at a relatively low valuation. With protection from Facebook and Twitter, the Chinese government has given Weibo free reign to dominate social media in the world’s most populous country, and it has taken advantage.

Weibo has built a user base of 376 million and growing.

Weibo’s revenue and profits have also grown along with use. So strong is the growth that the PEG will fall to approximately 0.5 at current prices. With a low PE ratio and a low valuation compared to Facebook, WB stock remains well-positioned to continue its high growth rates over the next two years.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.

 

 

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