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Is Autohome Stock a Buy or a Sell?

Is Autohome (ATHM) stock a sell because of its abrupt correction or a buy because of its sudden discount? Here’s what we think.

Autohome (ATHM) is a company that serves the automobile industry in China by providing a home for automakers and auto dealers to connect with auto buyers. The company’s website is set up to be a virtual showroom where shoppers can find dealers, see pictures (and specifications) of new cars, look at feedback on both dealers and automobiles, connect with loan companies and get information on the complicated process of registering a car in China.

The company has increased the menu of services it offers to the auto industry, including customized marketing services and help with managing customer relations. As a result, over the last five years, Autohome has enjoyed excellent revenue growth—including a 62% ramp in 2016—with earnings growing steadily; analysts are looking for 34% earnings growth in 2017.

This business success has also been reflected in the chart of Autohome stock. After two and a half lackluster years following its late 2013 IPO, ATHM stock finally found its feet in July 2016 with its stock trading at around 19. Since then, ATHM stock has soared into the upper 60s in recent weeks and looked to be forming a new flat base at that level. Here’s a one-year chart that shows both the stock’s strength and last Thursday’s dip.

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What to Do with Autohome Stock Now

On Thursday, September 28 the news came out that both the company’s president and its Chief Financial Officer had resigned. As is usually the case when this happens, no reason was given except to say that there hadn’t been any disagreement between the president, the CFO and the board of directors.

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The company was also able to tell investors that a respected CFO, a veteran of several other high-visibility Chinese companies, had been appointed. And since investors often look to the quality of a company’s CFO as evidence of stability and legitimacy, that move seems to have limited the damage to Autohome’s stock. ATHM was down about 7% at the open on Thursday, but rebounded quickly and stabilized around 59–60, a loss of about 5% for the day.

A double resignation from the executive suite is never good news, and the market is waiting for the real story to come out. Maybe we will hear something interesting and maybe we won’t. Chinese companies are much like U.S. companies in wanting to avoid embarrassing stories that may tarnish the brand.

Is Autohome stock either a sell because of its abrupt correction or a buy because of its sudden discount? I’d say neither at this point. I have the stock in the portfolio of Cabot Global Stocks Explorer and I put the stock on Hold after the news and the dip in the stock.

The one-year chart tells the story of a popular emerging market stock with more than a touch of volatility. We will have to watch the stock (and the headlines) very closely to see which way investors choose to react. Interest will be high.

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Paul Goodwin is a news writer for Cabot’s free e-newsletter, Wall Street’s Best Daily.