Bubble talk was sooooo Spring 2014. Remember when it felt like the sky was falling in social media, Chinese internet, cloud, web security and 3D stocks?? Well, rest assured many stocks and sectors have found their way back to the prior highs, and the ones that can’t get out of there own way like Pandora (P), Workday (WDAY), 3D Systems (DDD), Fireeye (FEYE) and SINA should be avoided at all costs. Admittedly I thought it might take years for many of the stocks that have come back.
One such company is YY inc (YY), a Chinese social media platform. What’s interesting about this company is that they actually have earnings, expected $2.68 this year, which analysts expect to grow 40% next with sales that are expect to grow from about $300 million last year to $550 million this year. Not bad, I guess. But again at 12x sales who really knows what you own when you buy a Chinese stock like this?
The chart over the last couple years is nothing short of breathtaking, up nearly 800% in that time period, never going below the closing tick from exactly 2 years ago, and now trading at new all time highs!
I am gonna keep this real simple. This is not normal price action, and I am not so stupid to start speaking of such things as bubbles, but it seems that anticipation into the Alibaba deal is causing some irrational exuberance once again. $10 to $90 to $50 and back to $90… ummmm all yours, too rich for my blood.
For every amazing chart like YY, BIDU, CTRP or NTES in the China internet space, I can find at least one to match that has not made back too much ground from the May lows… SINA, SOHU, YOKU, QIHU, WB & YOKU. It appears that investors are being a bit selective where as back in the start of the year you could have thrown a dart and bought any of these stocks and watched them go up 50%.
As we get closer to Alibaba’s expected IPO in the middle to the end of September it will be interesting to see what if any room portfolio managers have been making to add the new leader in the sector. I suspect that most U.S. based fund mangers have disavowed most Chinese internet stock by not excluding the few leaders mentioned above, and Alibaba will become the new bellwether, if that term can even be applied to this sector.
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