Spending and Growing

0
0
Stock (Symbol) Stock Price

Autohome (ATHM)

$45

Data is as of Expected to Report Sector
June 5, 2015 Aug 5 – Aug 10

Technology

Sharek’s Take
David SharekAutohome is China’s largest auto website for consumers, doing five times the revenue BitAuto is. In fact, I bought ATHM because we had so much success with BitAuto stock. But unlike BitAuto, Autohome is now delivering profit growth even as it invests heavily in advertising and technology. Here’s some stats from last qtr, year-over-year comparisons:

  • Automaker ad revenue grew 69% to $49 million.
  • Dealer subscriber revenue increased 90% to $36 million as dealership subscribers rose from 12,659 to 17,871.
  • Dealer advertising revenue grew 113% to $16 million.
  • Operating expenses rose from 37% of revenue to 51% due to expenses on ads & mobile development.
  • Sales rose 82%, management expects sales growth of 60% to 67% this qtr.

I like this stock a lot, its in both the Aggressive Growth Portfolio and Growth Portfolio. In a year where most Chinese stocks I follow have poor profit growth because they are spending to grow, ATHM is spending to grow and is still expecting 35% profit growth. For 29 times earnings this stock is undervalued. I think this $45 stock is worth $63 now, $84 next year.

One-Year Chart
ATHM_2015_Q2This stock was going on a tear, I thought it was going to leave me behind, so I got my clients in at $51. Of course it then sold off. Still, I’m happy with this investment. Est LTG of 34% and a P/E of just 29. Solid profit growth along the bottom.
Earnings Table
ATHM_2015_Q2_EPSLast qtr sales increased 82%, way above expectations, but profits grew just 40% as the company spent to grow.
 
ATHM beat by a couple of cents but it beat by 12 cents the qtr earlier, and I’m sure this qtr didn’t impress investors. 
 
Annual Profit Estimates
rose but not as much as the qtr earlier. I bet this took some air out of the tires.
 
Management guided NxtQtrEst higher, but analysts only upped a penny. Profits look to grow a healthy 30% on avg the next 4 qtrs.
Fair Value
ATHM_2015_Q2_PHAs I mentioned earlier, this stock has great potential. Some things that could derail it are (1) overspending to grow and thus hurting profit growth and (2) a crash of the ultra-high Chinese stock market.
Ten-Year Chart
ATHM_2015_Q2_10yrStock is trending up but in a volatile manner. Profits have grown steadily since the IPO in December 2013.
Power Ranking Bottom Line
Growth Portfolio

8 of 23

In a year when many Chinese Internet stocks are not growing profits rapidly because they are spending to grow, Autohome is getting both jobs done. I like this stock a lot. Risks are it could increase spending and the Chinese stock market has gone parabolic and could come down hard.
 
ATHM ranks 8th of 23 stocks in the Growth Portfolio
Power Rankings and 6th of 9 stocks in the Aggressive Growth Portfolio Power Rankings.

Aggressive Growth Portfolio

6 of 9

tags:
David Sharek David Sharek is stock portfolio manager and CEO of DavidSharek.com. David believes a company's profits ultimately drive the price of its stock. His book The School of Hard Stocks can be found on Amazon.com.