Saad Ullah
China is an emerging economy, which attracts investors from all over the world. We have collected 10 most promising Chinese companies to watch this year. At the end of the article, you will find interesting information about the advantages and the risks of investing in Chinese companies.
Alibaba (BABA)
This Chinese cloud and e-commerce giant is one of the best choices for investors in 2020. Why does this company look promising even when its stock price is close to the ATH?
Retail sales have dropped by 20% in China year-over-year. However, online sales are down by only three percent. This means that the COVID-19 hasn’t harmed the company’s business. Moreover, online retailers may have greater opportunities this year as offline retailers have suffered from lockdown restrictions. If the second wave strikes, there may be similar restrictions in place again which will give another great chance for online retailers like BABA.
The retail sales should return to its previous readings and online sales will also grow and reach at least 15%+. This will help the Alibaba business to recover. And this is not the only aspect to focus on. Alibaba’s cloud business does well as many enterprises moved online during the pandemic. The demand for cloud services is expected to have significant growth in the upcoming quarters.
Generally, Alibaba looks promising as the company may get back to growth in the next couple of months.
Financial information
The company’s stock is considered to be undervalued by the Yahoo Finance indicator and we agree with that. The company has all chances to rebound in the nearest future with the growth of retail sales. Their cloud business does well and this is another reason for the stock price to go up.
- Market capitalization – 591.855 billion USD
- PE ratio – 64.07
- EPS – 3.5
- Current ratio – 1.91
ZTO Express
ZTO Express is the Chinese version of the United Parcel Service. The company has shown great growth during the pandemic due to the rising demand for e-commerce services. And this is not the end of the uptrend.
ZTO Express is the biggest Chinese parcel delivery company. Their volume has surged 42% in 2019 after consecutive growth for two years. ZTO Express Stock price has established new tops in 2020 meaning the investors have trust in this niche. ZTO is likely to make this mix of consumer and product, which is likely to boost the price of the stock even higher.
Even if China is going to report its first recession for a decade, ZTO Express feels well and the price of the stock push higher being close to their ATH currently.
It is hard to predict the situation in the post coronavirus era. However, we can say for sure that the delivery business will be in high demand.
Financial information
The price of the stock is considered to be undervalued by the Yahoo Finance even if ZTO costs 36.29, close to the ATH. What does it mean? The company has great perspectives in the nearest future and may establish more ATHs in the upcoming months.
- Market capitalization – 28.455 billion USD
- PE ratio – 40.33
- EPS – 0.90
- Current ratio – 2.32
HUYA (HUYA)
Electronic sports is a huge business, which has generated more than one billion USD in 2019. More than 440 million people across the globe watched sports in 2019. The company we are describing currently is at the epicenter of this niche. Huya operates various streaming platforms. They are the owners of Nimo TV, which is an analog of Amazon’s Twitch. Huya depends on user-generated content, which is cheap or even free in most cases.
The company’s market capitalization reaches 6.3 billion USD. Huya is one of the most speculative companies on the stock market of China. However, those who believe that e-sports streaming and spectating has a bright future will definitely buy some stocks from this company. Huya is the hugest player in this niche in China.
Financial information
The price of the stock is considered to be undervalued by the Yahoo Finance even if ZTO costs 36.29, close to the ATH. What does it mean? The company has great perspectives in the nearest future and may establish more ATHs in the upcoming months.
- Market capitalization – 28.455 billion USD
- PE ratio – 40.33
- EPS – 0.90
- Current ratio – 2.32
Bilibili (BILI)
“Wow” is the only word we can pronounce when looking at Bilibili stock price, which surged by 100% this year. What is the secret behind this impressive growth? There is a word that has a special meaning in 2020 – ONLINE. Bilibili is a social video platform, which has very low to zero COVID-19 risks.
This online social platform has seen the growth of engagement in 2020 as many new customers came in and bought some products there. The company has reported huge revenue growth. They are planning to have about 60% year-over-year growth.
The coronavirus had a positive effect on the company as the activity on the platform has significantly increased, which, consequently, had a positive impact on the stock price. Moreover, investors have trust in this company and buy Bilibili creating higher demand for the stock.
Moreover, China is the first country to abolish all the restrictions and its economy, currently, is on the way to recovery. Bilibili is likely to sustain growth in 2021, which will push the stock price to establish new ATHs.
Financial information
The stock is considered to be overvalued by Yahoo Finance. It is not surprising as Bilibili is currently close to its all-time high levels. However, if the company develops its growth, the price may reach new tops.
- Market capitalization – 13.492 billion USD
- PE ratio – N/A
- EPS – -0.83
- Current ratio – 2.13
Luckin Coffee (LK)
The Luckin Coffee chart looks terrible! However, this is not a reason to avoid watching this company in 2020. LK offers a good opportunity to buy the stocks of the company at the cheapest price ever. It, the Starbucks of China, looks very promising and we expect this company to recover soon.
Luckin Coffee has lost around 50% of its stock price in 2020 which is evident as the company was affected by the coronavirus. The company operates in small coffee houses in China. At present, they have over 4500 coffee houses in the country.
There are two reasons for the recent company’s growth. The first reason is that young Chinese consumer has changed their preferences from tea to coffee. This will have a positive impact on the company’s growth in the next few years.
The second reason for this growth is that the company has decided to make this small coffee house strategy in this rising demand for the coffee environment. They offer quick service, which also has the winning strategy for a café in China.
The company has enough fuel to support its growth in the years to come. This will help the stock price to improve the current situation, especially if the pandemic ends and the economy will have a fast recovery.
Financial information
The stock is considered to be overvalued by Yahoo Finance. We can’t agree with that as the price has plunged significantly in 2020. Luckin Coffee is looking promising currently and we expect the price to start an uptrend in the upcoming months.
- Market capitalization – 1.033 billion USD
- PE ratio – N/A
- EPS – N/A
- Current ratio – 4.23
Tencent Holdings (TCEHY)
Tencent Holdings is another multitask platform, which is a social media for video streaming and video game company all in one. This company seems to be unbeatable and even if the cold war between the US and China starts tomorrow, Tencent Holdings will be one of a few companies that will suffer little damage. Why? It is unlikely that Chinese consumers will stream fewer videos in this situation. Mobile games will be in demand as well.
Revenues from the gaming industry and social media continue to rise. However, the company has seen great growth after having invested in the fintech and mobile payments industry via its most popular WEixin and WeChat applications.
Those investments were timely as the mobile payment niche is in demand. The volume of mobile payments is likely to grow in the nearest future. This trend will be fueled by growing retail sales including online retail sales.
The market capitalization of the company is slightly below the Alibaba’s market cap.
Financial information
The stock price seems to be overvalued but we should never forget about the perspective of this niche. Video streaming and gaming are something that is fueled by a growing interest. Investors show their trust by buying Tencent Holdings stocks, which is also a positive signal.
- Market capitalization – 547.867 billion USD
- PE ratio – 42.99
- EPS – 1.36
- Current ratio – 1.11
Vipshop (VIPS)
Vipshop is another representative of the Chinese e-commerce niche. The main advantage of this retailer is its low prices. The company holds dominance in this domain of off-prices and plays a very important role in the landscape of this Asian country's e-commerce branch.
It is worth mentioning that the e-commerce niche is in a pretty good shape during the COVID-19 pandemic as the online retail sales dropped by only 3%. We expect this industry to have a quick rebound which will give fuel to the stock price growth again.
Financial information
The stock price is currently considered to be overvalued by the Yahoo Finance fair price indicator, but Vipshop has some further potential to grow.
- Market capitalization – 12.715 billion USD
- PE ratio – 39.23
- EPS – 0.48
- Current ratio – 1.01
New Oriental Education & Technology Group (EDU)
The company was founded in 1993. The main aim of New Oriental Education And Technology Group is to provide their students with the best experience of distance learning, which becomes of the great interest in the current state of affairs. It is to mention that EDU is not adapting to current circumstances. Distance learning is their style for years.
What is this educational establishment? They are teaching English to the kids and prepare students for tests. The company is among the oldest, which is another important point of factor of trust for the investors. Moreover, the company’s revenues have tripled since 2014.
This Chinese company has seen a slowdown in revenues in the first quarter. Moreover, they do not expect a fast rebound in the second quarter. However, as the pandemic goes away, New Oriental Education & Technology Group will hold a dominant position in the local market.
Financial information
The stock price is considered to be near its fair value, according to Yahoo Finance fair value indicator. This is close to the truth as the company suffers from a revenue plunge for a second quarter in a row. However, New Oriental Education & Technology group looks very promising and may have even greater growth when the Chinese economy rebounds.
- Market capitalization – 19.623 billion USD
- PE ratio – 44.54
- EPS – 2.78
- Current ratio – 1.52
JD.com (JD)
JD is a true outperformer as the company has shown strong revenue growth since 2016. This company is a direct competitor of Alibaba and is occupying the e-commerce niche.
Retail sales have plunged in China in the first months of the year due to the fears of COVID-19. However, online retail sales have lost only around 3%, which is not so bad for businesses like JD.com. Moreover, the management of the company expects to see 10% of revenue growth in the first quarter of 2020.
It is also important to mention that in the fourth quarter of 2019 the company has shown an impressive 27% growth. This means that the company is able to get back to its 20%+ growth in the nearest future. If this happens, the stock price may reach new highs in 2020.
Financial information
The stock price is considered to be overvalued by the Yahoo Finance fair price indicator and this is true for now, but this is not the reason to skip this company and remove it from your watchlist. JD.com has all chances to rebound and even increase its growth in the upcoming quarters, which will help the company’s stock price to get new tops.
- Market capitalization – 90.171 billion USD
- PE ratio – 414.83
- EPS – 0.15
- Current ratio – 1.06
Weibo (WB)
This microblogging service is the close relative of Twitter. The name Weibo can be translated to English as a microblog. Chinese are known for conducting experiments. Weibo is not only the Twitter of China. It is also a Facebook and even an Instagram of this Asian country.
However, there is a big difference between Twitter and Weibo. Chinese microblogging service does not engage in political trolling as China is famous for its strict censorship. It is more about entertainment.
The company’s revenues have increased from 655 million USD in 2016 to 1.77 billion USD in 2019, which is impressive. Moreover, the current stock price is very low offering great opportunities for both traders and investors to purchase undervalued stock.
Financial information
The stock price is considered to be undervalued by the Yahoo Finance indicator and we can agree with that. Weibo has shown great growth performance in the past years and still looks very promising.
- Market capitalization – 7.802 billion USD
- PE ratio – 19.84
- EPS – 1.74
- Current ratio – 4.69
Baidu (BIDU)
Baidu nearly dominates the world’s biggest internet market being one of the most popular search engines in China. About 80% of the company’s revenue comes from advertisements. However, if you are considering to buy the company's stocks, you should know that internet marketing is not the only niche where Baidu is located.
Baidu also owns iQiyi, an online video streaming service. It is considered to be Chinese Netflix, but has strong competitors like Tencent Video and Alibaba’s Youku Tudou.
The company’s mobile business has suffered a plunge in recent years as its mobile share has fallen in comparison to Tencent’s WeChat.
Baidu is developing its artificial intelligence branch. Their AI business includes DuerOS (a voice assistant for smart speakers), Apollo (an open-source platform for self-driving cars), and the Cloud offering tools for call centers and enterprises.
Financial information
The stock price is considered to be overvalued by the Yahoo Finance indicator. The company has shown growth in revenue in recent years and almost reached 110 billion USD level. Baidu looks attractive for the investors as the price of the stock is low in comparison to the previous years.
- Market capitalization – 42.318billion USD
- PE ratio – 9.57
- EPS – 12.83
- Current ratio – 2.95
Pros and cons of investing in China
If you are still hesitating about investing in Chinese companies, you have a good reason. This market is a kind of a dark horse for the majority of retail investors and there are some aspects you need to consider before you put your money there.
The Chinese economy has significantly shifted in recent years. They have seen a growing middle-class, improving infrastructure, and increasing high-tech exports. All those aspects are the pillars making the local economy attractive for the investments.
Economical growth is still promised while it is below its previous readings. China is a dominant player not only in Asia, but also in the world. This tendency will develop in the upcoming years offering even greater opportunities for the investors to place their capitals.
While China is one of the world's leading high-tech countries, it still has some industries that may boom in the future. We are talking about their tourist niche, which is almost untouched. This means that the related companies will show great performance in the upcoming years.
All those advantages are great but you have to see the other side of the coin. Investing in the Chinese economy is accompanied with risks that you should consider before buying Chinese companies' stocks.
One of the biggest problems is that their companies have a different approach to the reporting policy. Moreover, the history of the Chinese Stock market is short and it is sometimes difficult to analyze the companies there.
China is the country of state-owned enterprises and this is a big problem for every investor. You can’t predict how the company’s administration will behave in a particular situation when this company is ruled by the state.
There are also political risks when investing in the Chinese economy. China is a mix of market economy and the communist party. You never know what to expect from this combination. The government is interested in the development of the economy, but on the one hand, it is hard to predict the consequences of a particular communist party's decision. What if they decide to nationalize one of those giants we have described in this review? This sounds ridiculous now but everything is possible happen in this realm.
There are also currency risks that you should consider. China still has an export oriented economy and its government may devalue the Renminbi at any time. The problem is that the stocks on the Chinese stock market are denominated in local currency. Once they push the Renminbi down, your assets will devalue too.
Saad Ullah
