QD - 3 Small-Cap Chinese Stocks with Major Upside Potential

The S&P/BNY Mellon China Select ADR Index, which tracks the performance of 48 major U.S.-listed Chinese companies, has gained 50.3% over the past year. The rally in Chinese stocks has been driven largely by investor euphoria over the quick recovery of the country’s economy from the effects of the COVID-19. However, several factors have caused downward pressure on the Chinese stocks and the index has declined 15% over the past month.

Among other factors, the Chinese government’s consideration of creating a state-backed joint venture to oversee big tech customer data, and the U.S. Securities and Exchange Commission’s (SEC) confirmation of the continuation of Trump-era auditing rules that could force some Chinese ADRs to delist, are primary reasons for the recent decline. Furthermore, an antitrust crackdown on the tech sector and weak earnings reports from some of the big Chinese companies have added to concerns.

This correction can be seen as a great opportunity to enter into Chinese stocks at reasonable prices, however. According to a report from UBS, the recent sell-off in Chinese stocks doesn’t dampen their long-term prospects. In fact, the recent price decline offers solid entry points into some Chinese stocks. And if one has an appetite for risk, investing in small-cap Chinese stocks may offer  high returns.

Qudian, Inc. (QD), Phoenix New Media Ltd. (FENG), and Fuwei Films (Holdings) Ltd. (FFHL) have delivered solid returns over the past year and we expect them to continue doing so.

Qudian, Inc. (QD)

QD is an online consumer finance platform that operates in China. The company leverages cutting-edge technology, such as artificial intelligence (AI) and machine learning to improve user experience. QD has gained 6.6% over the past year to close yesterday’s trading session at $2.26.

QD is expected to see 4.1 % revenue growth for the quarter ended March 31, 2021. The company’s EPS is estimated to grow 387.5% for the quarter ended December 31, 2020 and 1400% in 2021.

The company is involved in exploring new business opportunities including early childhood education. For the quarter ended September 30, 2020, QD  saw a 3.8%  increase in registered users versus  the same period last year. The number of transactions from its loan book business increased 18.7% during the same period.

QD’s POWR Ratings reflect this promising outlook. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.

It has a grade of B for Momentum, Quality, and Value. In the China industry, it is ranked #27 of 86 stocks.

In total, we rate QD on eight different levels. Beyond what we’ve  stated above we have also given QD grades for Growth, Sentiment, and Stability. Get all the QD ratings here.

Phoenix New Media Ltd. (FENG)

FENG is a content company that operates an integrated platform across mobile, internet, and TV. The company has operations primarily in China.

For the quarter ended December 31, 2020, the company witnessed a 33.7% decline in total operating expenses compared to the same period last year. Its  revenues from e-commerce, online real estate services, and other sources increased 31.2% during the same period.

FENG is expected to see 46% revenue growth in 2021. Its  EPS is estimated to grow 5.3% per annum over the next five years.

FENG has returned 72.4% over the past year to close yesterday’s trading session at $2.19. The company recently renewed its trademark licensing agreements with Phoenix TV.

It’s no surprise that FENG has an overall B rating, which equates to Buy in our POWR Ratings system. FENG has an A grade  for Value, and B for Momentum. In the same industry, it is ranked #10 of 86 stocks.

Click here to see the additional POWR Ratings for FENG (Growth, Quality, Sentiment, and Stability).

Fuwei Films (Holdings) Ltd. (FFHL)

FFHL is involved in the development, manufacture, and marketing of plastic film. This type of film finds application in packaging food, medicine, cosmetics, and more. FFHL’s stock price has increased 485.3% over the past year and its last closing price was $9.95.

The company  recently announced that it will be selling its Dornier production line as soon as possible. This production line manufactures high-performance electrical insulation film.

For the quarter ended September 30, 2020, the company’s net sales grew 6% compared to the same period last year. Its  net profit grew 297% during the same period. FFHL’s EPS is estimated to grow 7% per annum over the next five years.

The POWR Ratings are also high on FFHL. It  has an Overall Rating of A, which translates to a Strong Buy. FFHL also has an A  grade  for Growth, Value, and Momentum. In the same industry, it is ranked #1 of 86 stocks.

Beyond what we’ve stated above we have given FFHL grades for Sentiment, Quality, and Stability. Get all the FFHL ratings here.

The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.

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QD shares were trading at $2.27 per share on Friday afternoon, up $0.01 (+0.44%). Year-to-date, QD has gained 64.49%, versus a 5.18% rise in the benchmark S&P 500 index during the same period.

About the Author: Aaryaman Aashind

Aaryaman is an accomplished journalist that’s passionate about providing in-depth insights about investing and personal finance. Recently he has been focused on the stock market and he specializes in evaluating high-growth stocks.

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