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Why This Chinese Stock Should Be On Your Holiday Shopping List

Why This Chinese Stock Should Be On Your Holiday Shopping List

This stock may be the best way to take advantage of beaten down Chinese stocks, and analysts say it could see 50%+ upside ahead over the next year.

Chinese stocks have had a rough year. And iQiyi (NASDAQ: IQ) is no exception.

iQiyi was spun off from Chinese search giant Baidu (NASDAQ: BIDU) earlier this year and debuted at $18 per share on March 30. Shares climbed 61% above the IPO price by June, but since then, have fallen precipitously and the price now sits at just 8% above the IPO price.

But don’t count this stock out. At just under $20 per share, now may be the time to get greedy as others are fearful.

IQ is in a business that has never been as popular as it is right now. The Chinese streaming giant, that many call the “Netflix of China,” grew its audience by millions in the third quarter, and is expected to keep growing hand over fist.

Revenue was also up 48% year-over-year in Q3, and the company saw a 78% surge in membership revenues demonstrating that the company has been successful in turning ad-supported free users into subscription-paying customers.

That gain in membership revenues came from the number of premium customers rising 89% over the last year to 80.7 million. Netflix (NASDAQ: NFLX) may have more subscribers at 137.1 million paying customers worldwide, but that number has grown by just 25% over the past year – a far cry from iQiyi’s massive number.

So, with growth numbers like that, why has IQ been so beaten down in the last several months?

The answer is pretty simple. It’s not poor viewership or weak revenues that have caused the stock’s decline. It’s the ongoing trade war between the U.S. and China.

But punishing this stock on trade war fears makes very little sense. Video streaming has never been hotter, any workers who may lose their jobs over the trade war will likely spend more time on the streaming platform, and, despite the trade war, the company is still adding millions of paying viewers each quarter.

Furthermore, iQiyi’s streaming business is focused pretty exclusively on its domestic market. And where it is trying to grow its business outside of its market, it’s mostly looking at other Asian markets. Plus, any deals it may sign with Western entertainment companies likely won’t be subject to the tariffs imposed during the trade war. Thus, iQiyi’s business is less vulnerable and less exposed to trade issues than other Chinese stocks – yet it has been beaten down on these fears just the same.

Some might quip back that the company has yet to turn a profit, but when you consider why, it becomes a whole lot less of an issue. With streaming, content is the biggest growth driver. Just look at Netflix with its binge-worthy original content that has made the company into the winner in the field in the U.S. over giants like Amazon (NASDAQ: AMZN). For Netflix, that content has taken a chunk of money to create, and the same is true for iQiyi.

IQ is building out its streaming service in much the same way as Netflix, investing piles of cash into new original content to drive membership growth. And that investment is paying off.

The company’s The Story of Yanxi Palace drama series set viewership records in 2017 with more than 15 billion views throughout the series’ 70-episode run, and IQ was also responsible for more than half of China’s top 10 original internet dramas last year. And that content the company is creating isn’t just getting new paying users to sign up, it also keeps them hooked for the long term.

Analysts following IQ have a consensus Buy rating on the stock, and their average twelve month price target for it is $29.75 – 53.27% higher than the current price.

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