It’s been a brutal year for Weibo (NASDAQ:WB). WB stock surged almost 40% to start the year, but it has dropped since March. Weibo stock is now down more than 24% so far in 2018. It has done slightly better over the past 12 months, having fallen by 18% over that period.
The average analyst price target for WB stock sits all the way up at $127, implying that the shares can surge more than 60% over the next 12 months.
The highest target on the Street implies almost 100% upside, as it stands at $150. And even the lowest price target on Wall Street ($88) implies almost 13% upside. So investors have to ask themselves if Weibo stock is really worth buying.
Valuing WB Stock
The company currently sports a $9.5 billion market cap, but don’t forget, this is a China-based company. Chinese stocks have been under a lot of pressure lately. Even though WB is known as China’s version of Twitter (NYSE:TWTR), it’s not getting much love from investors lately.
Weibo, however, does have strong growth metrics. Analysts expect its revenue to surge 55% this year and another 35% in 2019. On the earnings front, analysts are predicting 53% growth in 2018 and 38% growth in 2019. Those forecasts indicate that the company will have stable margins this year, while its margins will expand in 2019.
Meanwhile, Weibo’s user base continues to grow significantly. The number of monthly active users on the platform climbed 19.4% year-over-year last quarter, as 70 million new users joined the website, bringing its total to 431 million. The number of daily active users jumped 19.5% YoY , growing to 191 million from 159 million.
So why did WB stock drop sharply? Honestly, I’m not sure. I know that answer doesn’t help, but Weibo is generating great growth in every area. It beat earnings and revenue estimates last quarter and issued in-line guidance. Additionally, Weibo stock trades at 28 times its 2018 earnings. That valuation really isn’t that high, given the company’s rapid sales and earnings growth.
But most Chinese stocks are in a major funk and until that changes, names like WB stock will likely remain under pressure. One good option may be to develop a list of a few, high-quality China stocks and buy them when they rebound.
Among the other possible names to consider are: Alibaba (NYSE:BABA), iQiyi (NASDAQ:IQ), Baidu (NASDAQ:BIDU), and JD.com (NASDAQ:JD).
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When should you buy WB stock? The fundamental story checks out right now, but fundamentals clearly aren’t driving the stock. Instead, we need to see what the charts say.
Currently, Weibo is trapped in a vicious downtrend. Its support near $70 held. Could $80 end up becoming a resistance level? It could. However, that doesn’t really matter because the long-term downtrend resistance level of Weibo stock is near $84.
If WB stock can push through that level and the 50-day moving average, the worst may be over for Weibo stock. If $84 becomes the resistance level again or if WB stock can’t push through $80, $70 is back on the table. If it falls below $70, look for support at $65, which is shown by the blue dashed line.
It’s a complex chart, but remember to keep it simple. If Weibo stock goes over the long-term downtrend resistance level, its outlook is bullish. If the shares stay below that level, their outlook isn’t very upbeat.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
