China’s relatively speedy economic recovery from the coronavirus pandemic’s disruption was noteworthy because it made it the only country to record growth in 2020. According to the National Bureau of Statistics, China, the world’s second largest economy, generated robust year-over-year GDP growth of 6.5% in the fourth quarter of 2020, and 2.3% annual GDP growth in fiscal 2020. This compares to the United States’ 2.3% slump in GDP in 2020.
China’s GDP growth is expected to continue this year. The IMF expects the country’s GDP to rise 8.1% this year versus the United States’ 5.1%. China’s impressive projected growth rates should allow its emerging companies to reach new highs because aggregate consumer demand there has been rising significantly. Also, an increased government crackdown on some of the country’s largest companies provides small-cap companies an opportunity to increase their footprints in their respective industries.
Therefore, we think it is wise to invest in small-cap Chinese stocks Cango, Inc. (CANG), Qudian, Inc. (QD) and China Online Education Group (COE). These companies are introducing new products and features to capitalize on the growth opportunity.
Cango, Inc. (CANG)
With a market cap of $1.49 billion, CANG operates an automotive transaction service platform that connects dealers, financial institutions, car buyers, and other industry participants in China. The company delivers automotive financing services that include facilitating financing transactions from financial institutions to car buyers, automotive transactions between automotive wholesalers, dealers, and car buyers, and after-market services to car buyers.
The company’s total revenue for the third quarter, ended September 30, 2020 came in at $64.06 million, which represents an improvement of 23.8% year-over-year. Revenue from its after-market services income segment increased by 69.4% year-over-year to $10.15 million, and revenue from the automobile trading income segment increased 1494.2% year-over-year to $10.36 million. Income from operations came in at $19.81 million, up nearly 50% year-over-year. CANG’s non-GAAP net income per American Depositary Share (ADS) increased 1162.8% year-over-year to $1.75.
A consensus EPS estimate of $0.06 for the quarter ending March 31, 2021 represents an improvement of 700% year-over-year. Also, CANG surpassed the consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $87.74 million for the quarter ended December 31, 2020 represents a 41.3% gain on a year-over-year basis.
CANG announced in March 2that its board of directors had authorized a share repurchase program under which the company may repurchase up to $50 million worth of its outstanding shares. CANG received the ‘Best Auto Finance Risk Management Innovation Award’ at the 5th Annual China Auto Finance International Summit, which was held in Shanghai last July. The stock has gained 107.1% over the past nine months and closed yesterday’s trading session at $9.86.
CANG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
The stock has an A grade for Sentiment and a B grade for Growth and Quality. We have also graded CANG for Stability, Value and Momentum. Click here to access all CANG’s ratings.
CANG is ranked #2 out of 85 stocks in China group.
Qudian, Inc. (QD)
QD is a China-based holding company principally involved in the operation of an online customer credit technology platform. The company operates primarily through two segments — installment credit services and transaction services. QD uses big data-enabled technologies, such as artificial intelligence (AI), and operates an online platform, with nearly all the transactions facilitated through mobile devices. It has a market capitalization value of $664.03 million.
For the third quarter, ended September 30, 2020, the company’s revenue from the sales income segment increased 2.5% year-over-year to $20.47 million. QD’s revenue from the penalty fee segment came in at $3.13 million, up 93.4% year-over-year. Its net income increased 230.6% sequentially to $87.23 million. And income from operations increased 145.8% sequentially to $113.08 million. Its non-GAAP net income per ADS increased 1700% sequentially to $0.32.
A consensus EPS estimate of $0.40 for the quarter ended December 31, 2020 represents an improvement of 400% year-over-year. The consensus revenue estimate of $142.29 million for the quarter ending March 31, 2021 represents a 4.1% gain on a year-over-year basis.
Last June, the company entered a definitive agreement with Secoo Holding Limited (SECO), one of Asia’s largest online integrated upscale products and services platforms, in which it will purchase up to 10,204,082 newly issued Class A ordinary shares of SECO. QD has gained 52.4% over the past nine months and closed yesterday’s trading session at $2.24.
QD’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a grade of A for Quality and B for Value. We have also graded QD for Stability, Growth, Sentiment and Momentum. Click here to access all QD’s ratings.
QD is ranked #9 in the same group.
China Online Education Group (COE)
With a market cap of $519.74 million, COE, through its subsidiaries, provides online English language education services to students in the People's Republic of China and the Philippines. The company operates online and mobile education platforms that enable students to take live interactive English lessons with international foreign teachers. COE also offers various specialty courses focused on situation-based English education and test preparation needs, such as Business English and International English Language Testing System (IELTS) speaking.
The company is scheduled to release its financial results for the fourth quarter and fiscal 2020 (ended December 31, 2020) on March 5, 2021 before the U.S. markets opens. COE’s net revenues have increased 31.8% year-over-year to $79.31 million for the third quarter ended September 30, 2020. The company’s income from operations came in at $3.15 million compared to a loss from operations for the third quarter of 2019. Its non-GAAP net income per ADS came in at $0.25 compared to a loss per ADS for the same quarter in 2019.
A consensus EPS estimate of $0.09 for the quarter ended December 31, 2020 represents an improvement of 800% year-over-year. Moreover, COE surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $81.09 million for the quarter ended December 31, 2020 represents a 44% gain on a year-over-year basis.
Last September, COE’s board of directors authorized a share repurchase program under which the company may repurchase up to $20 million of its Class A ordinary shares in the form of ADS between September 8, 2020 and September 7, 2021. The stock has gained 29.5% over the past six months and closed yesterday’s trading session at $25.49.
COE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Growth, Value and Quality. We have also graded COE for Stability, Sentiment and Momentum. Click here to access all COE’s ratings.
COE is ranked #3 in the same group.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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CANG shares fell $0.04 (-0.47%) in after-hours trading Wednesday. Year-to-date, CANG has gained 22.71%, versus a 2.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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