Valuation of Chinese stocks…

C

Capitaino81

I am a first time poster. I was looking for any opinions on the current valuations of Chinese stocks, particularly Chinese tech.

From my perspective, if I see something trading at all time low P/B values, I have to think it must be a buying opportunity. Especially in a growth market like Tech.

The stock I invested in heavily was KC Software (KC). They are a cloud software company. They IPO’d in 2019 at around $17. Every major investment bank put price targets of $35-$55 on it. It ran to $76 in 2021. Friday however, it traded as low as $1.77.

From $76 to $1.77 in about 18 months. The valuations on this stock are as follows:

P/B: 0.31
P/S: 0.30
Over 1 billion in revenue
Never have diluted. Have instituted a $100 million USD buyback program.
Have applied for listing on HK exchange.

So what am I missing? I’ve researched as many cloud/tech companies as I can find and I’ve never seen P/B values as low as this. I bought in at $5, looked at the run from $76 to $5, thought that was a good deal to get in. It goes to $1.77. Does the market even trade on fundamentals anymore? There’s been nothing fundamentally change with the company between $76 and $1.77. It’s a tech stock, taking a few years to scale and get positive EBITDA, and somehow you get this type of downward run as if it’s priced for bankruptcy. Except there’s no threat of bankruptcy.

I just named KC, but you can also put BABA in there too. Compare multiples AMZN gets vs BABA.

What is going on? It seems as obvious as buying oil in 2020 when oil was $15 a barrel. But if it’s obvious, why is everyone selling at valuations so low?
 
1, IF there is nothing to hide, why is there preventing an audit? The ball is on China's CRSC court.
2, If institutional investors(aka smart money) have been reducing their BABA holdings, what does it mean? Run!
 
Capitaino81 said:
I am a first time poster. I was looking for any opinions on the current valuations of Chinese stocks, particularly Chinese tech.

From my perspective, if I see something trading at all time low P/B values, I have to think it must be a buying opportunity. Especially in a growth market like Tech.

The stock I invested in heavily was KC Software (KC). They are a cloud software company. They IPO’d in 2019 at around $17. Every major investment bank put price targets of $35-$55 on it. It ran to $76 in 2021. Friday however, it traded as low as $1.77.

From $76 to $1.77 in about 18 months. The valuations on this stock are as follows:

P/B: 0.31
P/S: 0.30
Over 1 billion in revenue
Never have diluted. Have instituted a $100 million USD buyback program.
Have applied for listing on HK exchange.

So what am I missing? I’ve researched as many cloud/tech companies as I can find and I’ve never seen P/B values as low as this. I bought in at $5, looked at the run from $76 to $5, thought that was a good deal to get in. It goes to $1.77. Does the market even trade on fundamentals anymore? There’s been nothing fundamentally change with the company between $76 and $1.77. It’s a tech stock, taking a few years to scale and get positive EBITDA, and somehow you get this type of downward run as if it’s priced for bankruptcy. Except there’s no threat of bankruptcy.

I just named KC, but you can also put BABA in there too. Compare multiples AMZN gets vs BABA.

What is going on? It seems as obvious as buying oil in 2020 when oil was $15 a barrel. But if it’s obvious, why is everyone selling at valuations so low?
More...
With your informative post you are off to a good start on ET.
Markets go to extremes on both the upside and downside.
Buy more if the numbers are still good.
 
You cannot trust chinese companies because they can easily fake their balance sheets. That would be an explanation for those 'low' valuations.
 
TrAndy2022 said:
You cannot trust chinese companies because they can easily fake their balance sheets. That would be an explanation for those 'low' valuations.
More...
Harder for them to fake dividends; SNP (Sinopec, 20%) . Companies with > 50% State ownership are delisting from NYSE over an accounting dispute of several years duration. SNP, among the world's largest petrochemical companies, has reappeared in the U.S. with symbol SNPTY ? I assume it is OTC now ???. It's primary listing outside of China will now be on the Hong Cong exchange. U.S. Funds that held it sold in New York and re-bought in Hong Cong. SNP reported record earnings. Besides the usual risks associated with petrochemical industry, additional risks appear to be political in nature as well as some accounting issues related to less than full compliance with GAAP by Chinese State owned enterprises.
 
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Capitaino81 said:
I am a first time poster. I was looking for any opinions on the current valuations of Chinese stocks, particularly Chinese tech.

From my perspective, if I see something trading at all time low P/B values, I have to think it must be a buying opportunity. Especially in a growth market like Tech.

The stock I invested in heavily was KC Software (KC). They are a cloud software company. They IPO’d in 2019 at around $17. Every major investment bank put price targets of $35-$55 on it. It ran to $76 in 2021. Friday however, it traded as low as $1.77.

From $76 to $1.77 in about 18 months. The valuations on this stock are as follows:

P/B: 0.31
P/S: 0.30
Over 1 billion in revenue
Never have diluted. Have instituted a $100 million USD buyback program.
Have applied for listing on HK exchange.

So what am I missing? I’ve researched as many cloud/tech companies as I can find and I’ve never seen P/B values as low as this. I bought in at $5, looked at the run from $76 to $5, thought that was a good deal to get in. It goes to $1.77. Does the market even trade on fundamentals anymore? There’s been nothing fundamentally change with the company between $76 and $1.77. It’s a tech stock, taking a few years to scale and get positive EBITDA, and somehow you get this type of downward run as if it’s priced for bankruptcy. Except there’s no threat of bankruptcy.

I just named KC, but you can also put BABA in there too. Compare multiples AMZN gets vs BABA.

What is going on? It seems as obvious as buying oil in 2020 when oil was $15 a barrel. But if it’s obvious, why is everyone selling at valuations so low?
More...
Why are their gross margins so low?
Lowest I've ever seen for a software company.
That should be way way more.


Gross profit was RMB65.2 million (US$9.7 million), compared with RMB80.0 million last quarter and RMB118.5 million in the same period in 2021. Gross margin was 3.4%, compared with 3.7% last quarter and 5.5% in the same period in 2021. Non-GAAP gross profit2 were RMB68.4 million (US$10.2 million), compared with RMB83.6 million last quarter and RMB121.4 million in the same period in 2021. Non-GAAP gross margin was 3.6%, compared with 3.8% last quarter and 5.6% in the same period in 2021.
 
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