Autohome: Driving Gains in China

04/28/2015 10:00 am EST

Focus: STOCKS

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

As more and more Chinese consumers are becoming automobile owners, the lack of huge car dealerships has created an opportunity for online sources of information, notes growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

Autohome (ATHM) operates China’s most popular online auto information, advertising, and communication site, giving consumers the information they need and giving manufacturers and dealers a chance to offer information and make their pitch.

Autohome has booked a string of five years with revenue growth of 70% or more, and during that period, earnings have risen from 12 cents per share to $1.16 per share. And in Q4, both revenue and earnings rose more than 80%, with a strong 36.5% after-tax profit margin.

Also in Q4, the company announced that its network of dealers who subscribe to its Web site had grown to over 17,000, up 69% from the same quarter in 2013.

Competitor BitAuto (BITA) made five appearances in the Top Ten in 2013 and 2014, but Autohome has taken over the leadership role in the Chinese online automobile marketplace arena.

The company’s primary Web site is aimed solely at new car sales and information, but its che168.com site is devoted to the growing used-car market in China.

Investors are betting that Autohome’s overtaking of BitAuto will generate additional momentum as the leadership effect kicks in.

ATHM came public at 17 in late 2013, but the stock has never traded under $27. After its IPO gap up, ATHM soared to $52 in March 2014, then scooped below $30 before zipping to new highs in August and November 2014.

The stock is now putting the right side on a cup formation that started at $53 in November 2014 and bottomed at $35 in January.

The right side of the cup has featured a gap up on heavy volume on March 4 (earnings) and another volume spike on April 8 when the stock topped $51.

ATHM looks like a good speculative buy on any weakness, with a loose stop below $43.

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