Momo Inc (NASDAQ:MOMO) may be up “just” 23% over the past 12 months, but MOMO stock has been on fire in 2018. Shares are up almost 80% for the year and could be gearing up for even more upside.
Investors have to decide if this one rallied too far, too fast or if even more upside is in the cards. But I believe there are three reasons why Momo stock should be on investors’ radar.
MOMO Stock Growth
The first reason? The sheer growth of this company. For those that don’t know, Momo stock is a China-based social media platform provider. While Chinese stocks have been under immense pressure — be it Baidu (NASDAQ:BIDU), Alibaba (NYSE:BABA), JD.com (NASDAQ:JD), Weibo (NASDAQ:WB) or countless others — they will eventually bounce back. The growth is too strong and the end markets are too large to ignore.
Momo stock doesn’t have much to “bounce back” from though, given how well its stock has done. Still, when this group comes back and momentum is on the bulls’ side, Momo should get a big spark.
In any regard, what does the growth look like? Just a few days ago, Momo reported its second-quarter results. The company beat on earnings and revenue estimates, while third-quarter revenue guidance of $525 million to $540 million came in well ahead of the average $516.6 million estimate.
Monthly active users grew almost 19% year-over-year (YoY) to 108 million. That’s great growth for a social media company — no matter the market.
Valuing MOMO Stock
You might be wondering, what about the company’s forward growth prospects –why aren’t they listed above?
It’s not that they’re bad and we’re trying to hide them. Instead, we’re using them as part of the valuation story, our second catalyst for why shares can go higher. Current estimates call for 53% revenue growth this year and 30% in 2019. Given the latest beat-and-raise revenue results though, these could prove conservative as time goes on.
On the earnings front, analysts expect Momo to grow profits by 43% and 27% this year and next year, respectively. The estimate for $2.53 per share in earnings this year values Momo stock at a reasonable 17 times earnings. That’s pretty darn cheap given the growth here.
Also worth noting is that this $7 billion market cap company has no debt and almost $1 billion in cash.
Trading Momo Stock
Click to Enlarge
So the growth checks out, as does the valuation. But what do the charts say?
The average analyst price target for Momo stock sits at $58.23, implying about 33% upside from current levels. The question is whether the stock can climb that high. On the chart above, we have a few levels mapped out.
Support near $36 (blue line) held strong earlier this month and shares are back above uptrend support (purple line), a level which began at Momo’s December lows. I would love to see Momo stock retest this level and have it hold as support. Plus, it will give more aggressive bulls a solid buying opportunity.
If Momo can stay above this $44-ish area, it’s above all three major moving averages and uptrend support. Over $46, though, and shares can retest the highs near $54. By then, it may retest the backside of another uptrend line (in black), but that’s a little ways into the future.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, he did not hold a position in any of the aforementioned securities.
