Youku (YOKU): Small company with a big story
By Michael Cintolo, Editor of Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 5/9/11 Sign up for free Cabot Wealth Advisory e-newsletter
For my stock idea today, I'm going with a small company with a big story that's just had its first major pullback since blasting off in February. I'm talking about Youku.com (YOKU), which has been called the YouTube of China, but in reality, it's more like a combination of a Netflix or Hulu (because it offers generally professionally-made movies and shows) and YouTube (because advertising is the main source of revenue).
The company just reported first-quarter earnings last Thursday evening, and while the loss per share of six cents was a bit better than expected, the real upside showed up in revenue, which totaled $19.5 million, up 174% from the year before and well above expectations. Triple-digit revenue growth has always been one of my favorite fundamental criteria, and Youku.com had 140%-plus year-on-year growth in nine of the past 10 quarters.
The stock actually blasted off just as the market was topping in mid-February--it rose nine out of 10 weeks, advancing from 30 to 70 during that time. Powerful! Then came the correction, and it brought shares down to 54 last week, where they found support at the 10-week moving average.
So YOKU is a great buy right here, correct? Not so fast. Leading stocks are still generally under pressure, as are many Chinese Internet-related stocks. I'm not advising people to buy many things hand over fist. But YOKU is young (it went public only last December), likely still under-owned (just 128 mutual funds own a stake) and has a ton of growth ahead of it.
It's small and speculative, but a small position around here, with a stop around 52, could work out. At the very least, we'd keep the stock on your watch list.
Editor's Note: Mike Cintolo is VP of Investments for Cabot, as well as editor of Cabot Market Letter, a Model Portfolio-based newsletter of the best leading growth stocks in the market. It's been over four years since Mike took over the Market Letter, and during that time he's beaten the market by 13% annually (up a total of 65% since then, compared to a loss of 6% for the S&P 500) thanks to top-notch stock picking and market timing. If you want to own the top leaders in every market cycle, be sure to give Cabot Market Letter a try by clicking HERE.
By Timothy Lutts, Chief Investment Strategist and Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 3/21/10 Sign up for the free Cabot Wealth Advisory e-newsletter
One way to prepare for the market’s next leg up is to build a Watch List, a list of stocks you’re thinking about buying. I keep mine on a Post-It Note on my desk that I update regularly. Mike Cintolo keeps one as well (on a larger piece of paper, complete with notes) and he keeps the subscribers to Cabot Market Letter informed by publishing capsule descriptions of stocks that might be added to his portfolio in the future.
One stock he featured recently that I think has great potential is Youku.com (YOKU), which runs the largest Internet video website in China. At first glance, you might call the company the YouTube of China, but on closer inspection, you’d recognize it as the Hulu of China, because most of the site’s content is from professionals.
Just as Netflix is now trying an end run around the networks by buying original programming to distribute by Internet streaming, Youku.com bypasses the fragmented broadcast industry in China by putting a wide variety of professional-quality content on the Internet. Contributors include television stations, distributors and film and TV production companies.
Revenues come from advertising, and are growing very fast. Revenues were $4.8 million in 2008, $23 million in 2009 and $58 million in 2010. The company has not turned profitable yet, because so much money is spent growing the network’s infrastructure. But profits will come eventually, and I believe the stock will be much higher then.
In fact, one other reason to like the stock is that it’s so little known; it only came public in December. But it’s behaved very well since then, especially in recent weeks as the broad market has faltered. Still, I don’t recommend plunging in until the climate is right, and for advice on that, I recommend you heed the advice of Mike Cintolo. For details, click here.
Michael Cintolo
Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.