Autohome ( ATHM ) is on the move, and as the company focuses on big data to drive future growth, analysts believe there could be more room for the stock to run.
[ibd-display-video id=3065640 width=50 float=left autostart=true] Initiating coverage on China’s online destination for all-things-automotive with a buy rating on Jan. 2, Citi said that Autohome is “gaining share in auto ad budgets.”
Not only does the website – with content ranging from professional to user-generated to informational listings – make money from advertising, it’s also growing sales in two other segments: auto finance and data products. Citi expects these newer areas to drive the “next leg of growth.”
“Big data is one of our key competencies,” Chief Executive Min Lu said during the company’s quarterly earnings call on Nov. 7. “Being a leader in the market, we’re positioned to build and unify our comprehensive database of auto consumers and vehicles in China and leverage this vast amount of data to offer vehicle planning and design, consumer acquisition and sales leads conversion, highly targeted marketing solutions and detailed competitive analysis and sales projections.”
Over the last three quarters, earnings growth has accelerated from 15% to 39% to 58%, and that upward trend is projected to continue in the fourth quarter.
Analysts expect Autohome’s next quarterly earnings to hit 75 cents a share, which would be a 60% rise year over year according to Zacks Research.
After consolidating for over four months, Autohome shares surged nearly 11% in heavy volume on Jan. 2, sailing beyond a 67.79 buy point. The stock is continuing to extend its gains and is now trading roughly 7% above the entry. Looking at a weekly chart, the Relative Strength line is hitting new high ground, which confirms the move.
The recent pop not only coincided with Citi’s initiation of coverage, but it also came as positive economic data out of China lifted the nation’s internet stocks as a group.
Out on Jan. 2, the December reading for the Caixin/Markit Purchasing Managers’ Index for manufacturing reached 51.5. That not only surpassed estimates, but it marked a four-month high for the metric that focuses on small and midsize businesses.
“Manufacturing operating conditions improved in December, reinforcing the notion that economic growth has stabilized in 2017 and has even performed better than expected,” according to Zhengsheng Zhong, the director of macroeconomic analysis at Caixin’s subsidiary CEBM Group.
But amid “tightening monetary policy and strengthening oversight on local government financing,” according to Zhong, will Autohome as a company continue to perform better than expected?
IBD’S TAKE: Autohome ranks No. 1 in Investor’s Business Daily’s Internet-Content industry group with a highest-possible Composite Rating of 99 , meaning the stock outperforms 99% of all other stocks on a variety of fundamental and technical factors, including earnings and sales growth, profit margins, return on equity and price performance.
Even though Autohome’s full-year earnings per share growth rate expectation sits at a strong 22% for 2018, not all analysts have a rosy outlook for the stock. UBS maintained its sell rating in the wake of Autohome’s quarterly report in early November, saying there’s a “lack of visibility in (the) 2018 growth outlook.”
In particular, analyst Ming Xu noted concerns about a potential slowdown in advertising revenue growth and is cautious about “revenue contribution from the auto finance platform due to limited value add.”
On the other end of the spectrum, CLSA analyst Man Ho Lam said in a Nov. 14 research report that the auto finance platform has the “potential to begin contributing meaningfully” to revenue this year, according to StreetInsider.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.