Chinese stocks face a tumultuous landscape, painted by the downtrend in the Shanghai index over the last five years. The prevailing macroeconomic challenges and geopolitical tensions have cast a shadow of uncertainty over the market.
Yet, amidst the chaos lies an opportunity. Undoubtedly, several standout companies in the Chinese market have weathered the storm, presenting a compelling case for investment. With valuations at attractive levels, now is the time for savvy investors to dip their toes into the Chinese stock pool.
When sentiment shifts, these undervalued stocks are poised to soar, potentially delivering returns of up to 100% within the next two years. Let’s delve into three such hidden gems that hold the promise of lucrative growth.
Revving Up: Li Auto (LI)
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Li Auto (NASDAQ:LI) emerges as a standout among undervalued Chinese stocks. Trading at a forward price-earnings ratio of 27.3, LI stock boasts a growth rate exceeding 100% year-over-year. The stage is set for a monumental upswing as Li Auto continues to outshine in terms of delivery growth.
Eyeing a target of delivering 800,000 vehicles this year, Li Auto’s ambitious goals are well-supported by its recent performance. Last year witnessed the company achieve a 182.2% increase in deliveries, emphasizing its growth trajectory.
With the impending commercial launch of LI MEGA and an aggressive retail expansion strategy in China, Li Auto is poised for robust delivery growth that will reflect positively in its financials. The company’s robust free cash flows further fortify its potential to exceed $10 billion this year, offering ample room for innovation and expansion.
Shining Bright: Miniso Group Holding (MNSO)
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Miniso Group (NYSE:MNSO) shines as another undervalued gem poised for an upsurge. With a forward price-earnings ratio of 17.2 and a dividend yield of 2.22%, MNSO stock presents an enticing proposition for investors.
In the first quarter of 2024, Miniso reported a remarkable 36.7% revenue growth year-over-year, reaching $519.6 million. Bolstered by an adjusted EBITDA margin of 26.8% for the same period, the company’s margin expansion initiatives bode well for its stock performance.
With a global store count of 6,115 and a substantial year-on-year increase of 819 stores, Miniso’s robust retail presence forms the crux of its revenue stream. Coupled with a diverse range of lifestyle products, Miniso is well-positioned to capture market momentum.
Rising Stars: JD.com (JD)
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JD.com (NASDAQ:JD) stands as a prime example of a diamond in the rough, having endured a 48% correction in the past year. With a forward price-earnings ratio of 8 and a tempting dividend yield of 2.61%, the stock appears grossly undervalued.
In Q3 2023, JD.com reported revenue of $34 billion, showcasing resilience despite modest year-on-year growth figures. Noteworthy is the company’s robust operating and free cash flows of $8 billion and $5.4 billion over the last 12 months, underpinning its financial strength for future ventures.
Diversifying its portfolio with emerging segments like JD Health, JD Logistics, and JD Industrials, JD.com is positioning itself for substantial growth in the coming years. With JD Logistics already boasting a positive operating margin in Q3 2023, further margin expansion dynamics are likely to fuel EBITDA margin growth, benefiting the company at a broader level.