China-based companies with U.S. stock market listings have been under tremendous pressure since last year. Bilibili (NASDAQ:BILI) is no exception. Since hitting an all-time high of $156.37 per share in Feb 2021, BILI stock has fallen around 81.5%.
More recently, however, shares in this online entertainment and gaming company, sometimes called the “YouTube of China,” have experienced a substantial bounce back.
Why? After getting hit hard by China’s tech crackdown, delisting concerns, and other factors, recent remarks from a committee led by China’s top economic official have helped to renew U.S. investor confidence in Chinese stocks. This has helped Bilibili bolt from the high-teens per share to near $30 per share today.
With this you may feel the urge to dive into it, ahead of a further move to higher prices. However, I would advise against this. Its challenges with profitability will likely continue to negatively affect the performance of shares. It’s also not out of the woods when it comes to its delisting risk.
Taking both these factors into account, it’s best to avoid Bilibili stock.
BILI Stock and Its ‘Dead Cat Bounce’
Springing back to life over the past week, you may think the Bilibili comeback is underway. However, before you dive into it, keep in mind that its recent rally is merely what’s known as a “dead cat bounce.”
In other words, a short-lived rebound, after a big price decline. That’s what appears to be the situation here. And that’s not just with BILI stock, but some other Chinese-based, U.S. listed stocks as well. Starting last year, there has been increased concern about investing in China, due to several developments.
The Chinese government has cracked down on its tech sector. The U.S. Government has been looking to delist Chinese stocks that refuse to allow American securities regulators to audit their financials. On top of all this, are rising tensions between both countries, made worse by Russia’s invasion of Ukraine.
With so many negatives piling up since 2021, it’s no shock the market took a small amount of positive news and ran with it. Yet this recent news alone isn’t going to give this rebound much runway. Instead, its positive impact on the price of BILI stock has likely played out. From here, concerns about its future profitability, along with the still-present delisting risk, will come back into focus.
Bilibili and an Unclear Path to Profitability
The company may have reported high revenue growth, and high growth in its number of Daily Active Users (DAUs) for the December quarter. Even so, the numbers it reports in the quarters ahead could have a negative impact on the price of BILI stock.
For 2021, Bilibili reported a high net loss (around $1.1 billion). That is more than double the net loss reported in 2020. This came despite revenue surging 62%. As seen with a lot of growth names, an increase in revenue is not being matched with a move toward getting out of the red.
Worse yet, high net losses will continue this year and the next. So too is a slowdown in revenue growth. For 2022 and 2023, revenue growth is expected to rise by 30.7% and 30.8%, respectively.
Management may be stressing that it’s at work enhancing its monetization efforts. For now though, it’s unclear whether we’ll see improved results within a reasonable timeframe.
Delisting Risk Still Looms
The above-mentioned remarks from the Chinese government may suggest it’ll ease its crackdown. But that doesn’t mean other risks with China stocks are off the table. In other words, delisting risk still looms for BILI stock.
The threat of the U.S. government delisting Chinese stocks hasn’t gone away. That’s why companies like Bilibili have gone to the effort of obtaining a dual-primary listing on the Stock Exchange of Hong Kong.
Losing its U.S. stock market listing (on the Nasdaq) would have a major negative impact on its stock price. Delisted from the Nasdaq, trading of its U.S.-listed shares would likely move down to the over-the-counter (OTC) market.
This would compel many investors, both institutional and retail, to cash out, resulting in a big move lower. Granted, a possible delisting, if it happens, is years away. Still, I wouldn’t assume its current valuation fully accounts for this risk. Especially after its surge back to $30 per share.
The Verdict on BILI Stock
Earning an “F” rating in my Portfolio Grader, there’s no need to chase it right now. Bilibili’s recent spike will soon run its course.
Concerns about its profitability, and a possible delisting, will come back into focus. Once this happens? BILI stock will give back its “dead cat bounce” gains.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
