To come up with this list I first sought international opportunities with a strong history of sales growth and a forward sales growth trajectory. Then, I wanted to focus on profitable growth examining various operating performance metrics. This moved me towards a growth region that should be of no surprise; China.
“In carrying out e-commerce, the most important thing is to keep doing what you are doing right now with passion, to keep it up.” – Jack Ma
Today, while there are certainly risks to investing in China, there is also a tremendous growth opportunity. Looking ahead twenty years, the rewards associated with being exposed to the Chinese growth story far outweighs the risks. The proof is in the pudding. Finding a company with a five year revenue growth rate over 50% with impressive operating results is not easy to find in any region of the world. I’ve narrowed down the list to four high risk and high reward candidates. Note that two less risky high growth picks in China that we own in our Wide-Moat Profitable Growth portfolio are Alibaba (BABA) and Tencent (TCEHY). Keep in mind we may be adding a position to the holdings in our fund below and will let our subscribers know via a live alert if we do!
The other good news is that each of the stocks listed below can be purchased commission free via the Robinhood app (note that we have no affiliation with the app). If you don’t have this app you can use this link to sign up and we’ll both get a free stock like Apple, Ford, Sprint, and others!
1. Weibo (WB): 5 yr Revenue Growth: +77% | Projected EPS next yr +44%
This Chinese company launched by Sina in 2009 is now the social media giant of China. In 2013, they have partnered with Alibaba (BABA) to develop a social commerce platform moving traffic into Taobao stores. Weibo primarily generates revenue through video advertising offering a seamless platform for video content. In March 2018, monthly-active-users (MAUs) are over 400 million. According to Questmobile, WB was the 9th most popular app in terms of monthly active users as of Q1 2017, just behind apps owned by Tencent (TCEHY), BABA, and Baidu (BIDU).
Weibo’s growth story is at a discount compared to US counterpart Twitter while having superior growth prospects and higher operating performance. Note that the short percentage of float for WB is very high at nearly 41% according to Finviz.com, indicating that this is inherently a very risky investment. The strong profitability metrics provides a greater margin-of-safety in my view compared to the apparent market sentiment of WB. Below each stock will be the operating performance per the latest fiscal year.
2. Jupai (JP): 5 yr Revenue Growth: +101% | Projected EPS next yr +50%
Jupai provides high-net-worth individuals (over 500,000 USD) wealth management and advisory services. Jupai sells wealth management products provided by banks to the clients, serving as an intermediary and collecting commissions. JP also has an asset management business where assets under management (AUM) is nearly 9B USD.
Jupai focuses mostly on real-estate which is largely due to the Chinese culture. Most young men strive to own a home before getting married to compete with the imbalanced dating market of significantly more men than women. Some argue that Chinese real-estate is nearing a bubble which would be a risk to JP. Slowly but surely, products are shifting out of real-estate and more into secondary markets which diversifies JP’s exposure. Disclosure: In my personal investment portfolio I own shares of JP.
3. YY Inc (YY): 5 yr Revenue Growth: +70% | Projected EPS next yr +23%
YY is the leading live-streaming service in China. YY also owns 48% of the Chinese videogame streaming service HUYA (similar to Twitch in the US owned by Amazon). Currently, YY has nearly 80M monthly active users from a diverse content spectrum including dancing, singing, education, etc.. (similar to YouTube). This growth company also operates an online game media website Duowan.com
YY is an extremely scalable business with more traffic growth resulting in even better profitability metrics!
4. 58.com (WUBA): 5 yr Revenue Growth: +79% | Projected EPS next yr +39%
58.com Inc operates an online marketplace which enables local merchants and consumers to connect and do business. People call WUBA the “Craiglist” of China but with a slightly different business model. Recently, 58.com acquired a minority stake in a rental brokerage company 515J Holding Group. Read more about it here!
There you have it – our top four high-risk high-reward ideas on China. We think investors with a time horizon of 20 years or more should certainly be looking for growth in this region! Thanks for reading!