I've Got My Eye on This Rapidly Growing, Undervalued China Name
The company's next earnings report, due at the end of March, may serve as a catalyst for a breakout.
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The story of the market lately is increased volatility. There was very poor action last Monday and Friday, but the market then bounces back the next day and forgets whatever it was worried about.
The Magnificent Seven MAGS names have also been very choppy, with Nvidia NVDA rebounding strongly after the DeepSeek scare, and Meta META finally resting after 15 straight sessions of gains.
On my screens, AST SpaceMobile ASTS, which I highlighted on February 4 at around $22.50, is going parabolic and trading at $32.50. As I wrote, I believe this stock is a game changer and maybe the next Palantir Technologies PLTR.
Another name to keep an eye on is Palladyne AI (PDYN). This stock is gaining attention as an AI play that is used for the training of robots and drones. It is one of those themes that tends to attract speculative interest.
I’m looking hard for more things to buy, but I am finding entry points difficult. One name I’m putting on my radar but have not bought yet is Atour Lifestyle Holdings Limited ADR ATAT.
Atour is principally engaged in hotel operations in China. The company has approximately 834 hotels located across 151 cities in China, with more than 96,969 hotel rooms. Seventeen of the hotels are theme-based and include music, basketball, and literature themes.
Most of Atour’s hotel properties are "manchised," which means the company franchises and then manages the property. This is a high-margin business and reduces investment risk.
Atour has positioned itself as an upper-mid-scale hotel chain that attracts quality-conscious tourists. Because of its widely recognized lifestyle brand, Atour has also expanded its offering to retail products with certain hotel supplies and other products, gaining a rapidly growing revenue stream.
The company is expected to earn $1.23 per share for 2024 and grow that 28% to $1.63 in 2025. In the third quarter of 2024, revenues jumped 53% to $270.5 million. The stock trades at a trailing P/E multiple of 23x.
On December 8, 2024, Goldman Sachs initiated coverage of ATAT with a "buy" rating and a target of $34.40. Goldman states that Atour is one of the fastest-growing chain hotel operators in China, with its hotel count more than tripling, or at a +30% CAGR, from 420 at end of fiscal 19 before the pandemic to 1.5 thousand as of end of Q3 2024, covering close to 200 cities nationwide.
Goldman believes Atour is well-positioned to benefit from accelerating industry consolidation trends as smaller, independent hotel operators want to stay competitive through product upgrades and joining chain hotels.
Technically, ATAT stock has been sitting in a trading range since a big run-up in September. Its next earnings report is due at the end of March and may serve as a catalyst for a breakout from this range. As a Chinese name, it sells at a discount, but the rapid growth is not appreciated in the current valuation.
I’ll be watching it for a potential entry point.
The character of this market has shifted lately. While it is bullish action, volatility is higher, and that makes position trades more difficult because things are jumping around randomly.
At the time of publication, Rev Shark was long ASTS, NVDA and PDYN.
