According to the World Bank Global Economic Prospects report, China’s GDP is expected to grow 6.9 %in 2021. Economic activity is now gradually returning to normal in the country. China’s economic recovery from the pandemic is leading the world, with capital flows and product innovation reinforcing its return to pre-pandemic levels.
China’s retail sales, industrial production and digital media platforms have been the largest drivers of this economic rebound. Investing in Chinese high-growth stocks in the upcoming months now seems set to generate long term gains.
Suffice to say, the prospects for Chinese growth stocks look bright. Companies like Nio Limited (NIO), Pinduoduo Inc. (PDD) and Baidu, Inc. (BIDU) have the highest growth potential because they have the potential to capitalize on powerful long-term trends and grow their sales and profits for many years.
Nio Limited (NIO)
NIO is a designer, manufacturer and seller of electric vehicles offering five-, six- and seven-seater electric SUVs worldwide. The company also manufactures e-powertrains, battery packs, and various other components and offers charging solutions and battery swapping services.
NIO recently launched an innovative ‘Battery-as-a-Service’ subscription model that allows users to purchase electric vehicles and subscribe to the usage of battery packs separately. This upgraded solution will help NIO’s vehicles stand out in the market.
On September 3rd, NIO announced the completion of the offering of 101.78 million American depositary shares. The company raised $1.30 billion from the offering and intends to use the proceeds to repurchase equity interests and fund the company’s overall development expenses.
NIO’s revenue has increased 146.4% year-over-year to $666.60 million in the third quarter ended September 2020. Gross profit rose 87.1% sequentially to $86.30 million, while its gross margin increased 452 basis points sequentially to 12.9% in the third quarter.
The consensus EPS estimate for the current quarter ending December 2020 indicates a 74.3% improvement from the year-ago value. Moreover, NIO has an impressive earnings surprise history, with the company beating consensus EPS estimates in three of the railing four quarters. The consensus revenue estimate of $967.84 million for the current quarter indicates a 137.8% growth from the same period last year. The stock has gained 970.7% year-to-date.
How does NIO stack up for the POWR Ratings?
B for Trade Grade
B for Peer Grade
B for Industry Rank
B for Overall POWR Rating.
The stock is currently ranked #15 out of 115 stocks in the China industry.
Pinduoduo Inc. (PDD)
PDD is an e-commerce mobile platform offering a wide range of products like shoes, bags, apparel, food and beverage, fresh produce, electronic appliances, household goods, personal care items, fitness items, and auto accessories in China.
PDD recently announced that it is raising $6.10 billion through an equity and convertible notes offering. Proceeds of the offering are expected to fund the company’s investments in agricultural logistics infrastructure and responsive manufacturing.
PDD company has hosted more than 5 million sellers on its platform and connected more than 12 million farmers through its agricultural initiatives, according to a recently released ESG report. The company expects to bring more people into the digital economy by increasing its resources and strengthening its growth opportunities.
PDD’s revenue has increased 89% year-over-year to $2.09 billion in the third quarter ended September 2020. Gross profit rose 92.8% from the year-ago value to $1.61 billion, while net cash from operating activities increased 217.8% year-over-year to $1.22 billion over this period.
The consensus EPS estimate of $0.07 for the current quarter ending December 2020 indicates a 170% improvement year-over-year. Moreover, PDD has an impressive earnings surprise history, with the company beating consensus EPS estimates in three out of the trailing four quarters. The consensus revenue estimate of $2.88 billion for the current quarter indicates 86.5% growth from the same period last year. The stock has gained 287% year-to-date.
PDD’s strong fundamentals are reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” for Trade Grade, Buy & Hold Grade and Peer Grade, and a “B” for Industry Rank. It is ranked #1 out of 115 stocks in the same industry.
Baidu, Inc. (BIDU)
BIDU is a global internet service provider, operating through two segments — Baidu Core and iQIYI. The Baidu Core segment includes the Baidu App, while the iQIYI segment provides an online entertainment service.
On November 17th, BIDU announced that it will acquire JOYY’s live streaming business in China. This transaction will allow BIDU to grow its user base and boost its business growth.
BIDU also recently launched its new flagship Xiaodu Smart Display X10 and XiaoduPods smart earbuds. These affordably priced products should help the company attract a significant number of new customers.
BIDU’s revenue increased 8% sequentially to $4.16 billion in the third quarter ended September 2020. Operating income grew 161% year-over-year to $907 million, while adjusted EBITDA rose 77% year-over-year to $1.34 billion over this period.
The consensus EPS estimate of $1.65 for the quarter ending March 2021 indicates a 30.9% improvement year-over-year. BIDU has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $3.97 billion for the next quarter indicates a 23.1% increase from the same period last year. The stock has gained 14% year-to-date.
BIDU’s promising outlook is reflected in its POWR Ratings. It is rated a “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and a “B” for Industry Rank. It is ranked #2 out of 115 stocks in the same industry.
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NIO shares fell $0.39 (-0.86%) in after-hours trading Monday. Year-to-date, NIO has gained 1,034.33%, versus a 16.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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