By Paul Goodwin, Chief Analyst, Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 6/17/14 Sign up for Cabot Wealth Advisory—it's free!
BitAuto (BITA) is a Chinese company whose website helps China’s automobile buyers find information about cars and prices and give feed back about their experiences. It also lets dealerships set up virtual showrooms and communicate with potential customers. Probably the best U.S. equivalent is cars.com.
While China is a huge market for automobiles, it’s also a very fragmented market, with no national retail chains and few national brands. By bringing car buyers and sellers together, BitAuto is performing a valuable service and enjoying great results. The company experienced revenue growth of 40% in 2013 (and 47% in Q1 2014), with estimates of 2014 earnings up 50% (from $1.03 in 2013) to an estimated $1.55 in 2014.
BITA is also up from 32 at the beginning of the year to 45 in recent trading. But for purposes of this article, the numbers and the price appreciation aren’t relevant. The point is that BitAuto has a great story, one that Tim would enjoy telling at a party.
So for my stock pick today, I’m going to give you the write-up of BitAuto that I did for Cabot China & Emerging Markets Report. We owned the stock from September 2013 through March 2014 and made a good profit when we sold as the stock corrected sharply in March and April. BITA is now pushing back near its March highs, and I’m considering re-recommending it to my subscribers.
As with all of Cabot’s growth recommendations, BITA has a strong combination of Story, Numbers and Chart, which makes it a much better bet for investment than just a good story.
But I do love a good story.
"At the end of 2003, there were about 8.5 million passenger cars on China’s roads. Those were the days when photos of the morning commute featured mostly bicycles. At the end of 2012, that number had risen to 120 million, according to China’s Ministry of Public Security. The more than 15 million passenger cars delivered to new Chinese owners in 2012 outnumbered the total number of cars on the road in 1999.
"New car sales are expected to near 17 million in 2013, and sales of all vehicles will top 20 million. And if the estimates from China’s Ministry of Transport are right, by the year 2020, the number of passenger cars on Chinese roads will likely top 200 million. All in all, that’s not bad for a country that, until 1994, restricted auto ownership to government agencies and Party official. In 1985, there were reportedly only 60 people in Beijing with private, non-government cars.
"There are very limited opportunities for U.S. investors to participate directly in this automotive revolution. Stocks of the big Chinese manufacturers like Chery, Geely, BYD and Great Wall are only available on pink sheets.
"Fortunately, there’s BitAuto Holdings (BITA), a company that provides Internet content and marketing services for Chinese auto manufacturers and dealers. According to its 2012 annual report, BitAuto provides advertising services and digital market solutions to 60 of the 82 major automakers in China.
"BitAuto’s business is built on four core offerings:
• The BitAuto.com advertising service (about 80% of 2012 revenue) gives auto dealers a place to list pricing and promotional information on the Web, posts specs, reviews and feedback from consumers and sells advertising;
• The EP platform, developed in 2012, gives new car dealers a place to build virtual showrooms online and provides digital marketing and customer relationship management (CRM) applications;
• The taoche.com Website (about 2% of 2012 revenue) does the same thing for used cars;
• BitAuto’s digital marketing solutions business (about 18%) helps dealers build Websites, buff their images and plan and execute online marketing and advertising campaigns.
"The rapid growth of the Chinese automotive marketplace has been good for BitAuto. At the end of 2012, the company had sales and service representatives in 132 cities across China, with plans to continue expanding. Revenue grew 59% in 2010, 53% in 2011 and 61% in 2012. During those same years, earning grew from 26 cents per share in 2010 to 40 cents in 2011 and 58 cents in 2012. Estimates for 2013 earnings are for 91 cents per share.
"The company’s Q2 earnings report showed a strong 41% jump in revenue and a scorching 109% jump in earnings. The stock reacted with a big jump on huge volume.
"BITA came public in November 2010 at 12. After a few months, the stock began a torturous 15-month correction that pulled it down to a double bottom at 3.5 in January and June 2012. But once BITA got going, it showed real strength. From that low of 3.5, the stock has now hit the teens, spiking to 18 briefly after its great Q2 report. After that spike (which came on 1.75 million shares traded vs. its 166 million average), the stock has spent five weeks in a volatile consolidation. Support has appeared at 13/14 and resistance at 16/17. The stock has generally been following its 25-day moving average higher.
"BitAuto Holdings is still a young stock in terms of market acceptance. The company has huge potential, both from the growth of the Chinese automotive industry and from the increase in Internet penetration among Chinese consumers. While it’s no slam dunk, if BitAuto gains wide acceptance as a way for consumers to find cars and for manufacturers to find consumers, the sky’s the limit."
For more information on BITA and additional high-potential growth stocks I'm following in Cabot China & Emerging Markets Report, consider taking a trial subscription. Our market timing indicators are flashing "buy" and now IS the time to get on board. Click here for more details.
By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 12/2/10 Sign up for free Cabot Wealth Advisory e-newsletter
Trying to decide whether a new IPO will be a winner just after it comes public is a tough job. Sure, you have some information about the company’s sales and earnings before its IPO, so it’s not like trying to decide whether a newborn baby is going to grow up to be a CEO or a burger flipper. But it’s much harder to gauge the potential of a stock that doesn’t have a chart to show how well it’s being received by investors.
I look for stocks with a good combination of Story, Numbers and Chart, which translates to 1) an appealing business proposition with huge growth potential, 2) strong fundamentals in the form of strong revenue and earnings growth, and 3) a chart that shows an increasing appetite on the part of investors for the stock.
BitAuto (BITA) came public on November 17, and has been trading between 12 and 14 in the days since. So there’s certainly no evidence that BITA was an issue investors had been panting for. That knocks Chart out of the picture.
And the Numbers for BitAuto haven’t been especially impressive. In the company’s short life, it has had more years with losses than profits. And in the four most-recent quarters, the company has reported four losses, including losses of 91 cents per share in the most recent three. You have to decide whether the three quarters of 56% gains in revenues are hopeful enough to counterbalance the losses.
That leaves the Story to carry the water for BITA, and it’s a pretty good one.
Investors have been looking for a way to play the Chinese automotive industry for years now, and BitAuto offers a new approach. The company offers online marketing services to both new and used car dealers. Dealers can set up online showrooms and supply price data, videos and inventory for potential buyers. BitAuto can also help with the dealers’ marketing efforts.
Everyone agrees that auto sales in China, which have already surpassed those of the U.S., will only grow in the future. China has put staggering amounts of capital into building a great highway system, and the appetite of the Chinese people for cars isn’t in doubt.
The question is, will new and used car dealers hire BitAuto or do it themselves?
The Story is strong enough to put BITA on my Watch List, but it can’t produce a buy recommendation all by itself. Keep an eye on this young, high-potential issue.
Editor’s Note: Paul Goodwin is the Editor of the Cabot China & Emerging Markets Report, which Hulbert Financial Digest ranked the #1 newsletter for the last five years based on its excellent performance. The Report has rewarded subscribers with a whopping 175% total return over the last five years compared to the Wilshire 5000’s gain of 12% over the same period. Start beating the market with Cabot China & Emerging Markets Report today! Click here now.
Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report
A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the number-one-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a 74.1% return, and the top-performing investment adivsory for five years with a 17.9% annual return.
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