This Stock Could Offer Outsized Growth at a Reasonable Price

Momo Inc (ADR) (NASDAQ:MOMO) stock has had an interesting 2017. While this social media firm continues to grow its base and tear through earnings and revenue estimates, analysts have slammed MOMO stock twice this year after releasing earnings.

The most recent occurrence was Tuesday. After blowing away analysts earnings and revenue estimates — which would mean a huge rally for say, US firms like Facebook Inc (NASDAQ:FB) or Twitter Inc (NASDAQ:TWTR) — MOMO stock dropped 20%.

And the fact that it’s the second time this has happened this year makes it even more mysterious.

When Q2 numbers were released the stock came off its highs and dropped more than 30% in just a few days trading.

Yet MOMO stock is up 40% year to date, even after these stunning swoons.

What does MOMO do? It started as a dating service app for the huge amount of young people who were migrating to the booming cities around China.

China has 20 cities with a population of more than 7 million. The U.S. has one.

Recently, it has gotten into the streaming business — live concerts, performances and other content that it can charge its nearly 90 million Monthly Active Users a premium to use.

It seems some analysts aren’t happy with the substantial revenue growth; they want to see it come from a specific aspect of the business.

This is a classic situation where one set of investors see opportunity in this 6-year-old company that just revamped its market strategy a couple years ago. And another set see an unsettled company that may be making money, but isn’t making it in the right places.

Also, maybe fueling the latter camp is the fact that MOMO is a Chinese company and because of that, the analysts don’t think they’re getting the transparency they would from a similar U.S. firm. Maybe that’s true, but cooking the books to make performance look better than it actually does isn’t a rare thing with U.S. publicly traded firms and they aren’t discounted or punished for it.

Some are even suggesting that MOMO selloff was simply institutional investors taking profits on expensive companies before the end of the year.

But that doesn’t really make much sense since MOMO stock’s PE is under 20, which given its growth is a bargain. For example, FB, a more mature company sports a price-to-earnings ratio of 32. And streaming service Netflix, Inc. (NASDAQ:NFLX) has a P/E of 190 but no one is selling it off at year end. Even a Chinese competitor, Weibo Corp (ADR) (NASDAQ:WB), is trading at a P/E of 92.

Is MOMO overvalued? No, not compared to any of its competitors.

Is its new business plan not working? No. Everything is going well.

Is it a stock to avoid? No, unless you prefer to avoid outsized growth at a reasonable price.

— Louis Navellier


Source: Investor Place