Should You Buy the ‘Twitch of China’ Huya Inc as It Surges on Earnings?

Huya stock has been on fire and has more than doubled since its IPO

Huya stock - Should You Buy the ‘Twitch of China’ Huya Inc as It Surges on Earnings?

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On Tuesday, Huya Inc – ADR (NYSE:HUYA) reported its first earnings result as a public company. Quite frankly, the results were very impressive in my mind. Huya stock first spiked in after-hours trading but found itself slightly lower in Wednesday’s trading session.

Is the market missing something or simply digesting the large rally over the past few weeks?

Sometimes it’s better to be lucky than good. With these mid-cap Chinese stocks, that’s precisely how I stumbled into them.

About a month ago, Berkshire Hathaway Inc. (NYSE:BRK.A, NYSE:BRK.B) hosted its annual shareholder meeting in Omaha, Nebraska. Warren Buffett’s right-hand man Charlie Munger said he believes that many American investors are overlooking the huge potential in China.

Why? That reasoning isn’t clear, but probably because China has a completely different culture in a completely different part of the world. Investors simply aren’t familiar with it, so they look to what they know.

But after watching the annual meeting, I started taking a deeper look at Chinese stocks. First I combed over names I knew well like Baidu Inc (ADR) (NASDAQ:BIDU), Alibaba Group Holding Ltd (NYSE:BABA) and JD.Com Inc (ADR) (NASDAQ:JD).

Then I stumbled into the mid-cap range and began investigating stocks new to me, like iQIYI, Inc (NASDAQ:IQ), Sogou Inc (NYSE:SOGO) and finally, Huya stock.

What Is Huya?

Huya is being referred to as the “Twitch of China.” For those that don’t know what Twitch is, it’s a live-streaming gaming platform now owned by Amazon.com, Inc. (NASDAQ:AMZN). And yes, people really do tune in to watch people play video games live, and yes, it really can generate sales and profits.

Huya stock has already more than doubled from its $12 IPO price from less than a month ago. With its — at the time — market cap of less than $4 billion, investors frantically bid the stock higher as names like IQ — “the Netflix, Inc. (NASDAQ:NFLX) of China” — BABA and SOGO were in demand as well.

Now investors are trying to sort out where these smaller Chinese stocks should trade. Even though they have bright futures, many are up 50%, 60%, 100% or even more over the past few weeks and months.

In Huya’s case, the company turned in a pretty solid quarterly report on Tuesday evening. Revenue of $134.5 million soared 111% year-over-year, while the company turned a slight profit of $5 million. This is vs. a loss in the same period last year, and by the way, this profit is on a GAAP basis. It’s good to see both sales and earnings moving higher.

Daily active user growth grew 25% YOY, outpacing monthly active user growth of 19.2% in the quarter. This shows engagement on the platform is strong, as more users are logging in daily to see what’s going on. Huya now sports more than 92 million total users on streaming platform.

Pretty impressive for a now-$6-billion, profitable company with triple-digit revenue growth. Can you see why investors are bidding up Huya stock now?

Trading Huya Stock

Huya stock has been on fire, but there’s just one problem: there’s not much chart to use!

chart of Huya stock price
Click to Enlarge
Source: Chart courtesy of StockCharts.com

After pricing its IPO at $12, Huya stock began trading on May 11. We don’t have any major moving averages to go off of, and there are no reliable trend lines to base our levels on.

A few areas of support and resistance did stand out, though, particularly when Huya stock was trading around $19 and $23. When applying the Fibonacci levels, these areas became clear retracement levels.

So what does it mean for investors looking to buy Huya stock? A pullback down to the $23 area would be great and would give investors a solid risk/reward opportunity to grab some of this red-hot stock.

Conversely, more aggressive bulls may want to consider buying on a pullback into the mid-$27 range, which has been holding up lately. SOGO, IQ and HUYA are consolidating lately, and it’s not clear which will come first: a pullback or another rally.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell was long IQ and SOGO.


Article printed from InvestorPlace Media, https://investorplace.com/2018/06/should-you-buy-the-twitch-of-china-huya-as-it-surges-on-earnings/.

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