Nice Beat, Nice Price

0

ATHM_2015_Q1Today I will purchase Autohome (ATHM) for the Growth Portfolio and Aggressive Growth Portfolio. Autohome is China’s #1 auto site where individuals can research cars and purchase them online from dealers.

Autohome is similar to another stock we owned — BitAuto (BITA) — but what makes ATHM different is it’s growing profits at a rapid rate this year where as BITA is spending heavily on technology and that is hurting profitability in 2015.

Yesterday I considered buying ATHM at $53 as it was set to report profits. A qtr earlier the company beat the street by 11 cents and ATHM proceededd to climb. So another big beat could send the stock soaring. On the other hand the market is acting weak right now — and many stocks have tanked after they have reported — so a weak qtr could send the stock down. I didn’t buy, and waited to see what the company would happen.

Today when ATHM reported it beat my estimates by 2 cents and upped 2015’s revenue estimate from $128 million to $130-137 million. The stock went down to $49 on the news and has since recovered, selling at $51 now.

ATHM grew profits 40% last qtr and has an estimated long-term profit growth rate of 37%. The stock sells for around 34 times earnings but this will adjust in the next week as annual estimates will probably rise (revenue estimates did).

ATHM_2015_Q1_FVThe company is expected to earn just north of $2 in 2016, and if it makes that and gets a 40 PE then the stock could reach $80 next year, a gain of more than of 50%. This does come with risk though as many Chinese Internet stocks have recently decided to invest more into technology and and have cut profit estimates.

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.