Alibaba is the Google of China. They were supposed to take their IPO to Hong Kong, but they seem to prefer NYC.
Alibaba is one of the largest internet companies in China, and is expected by many analysts to be one of the largest and most eagerly anticipated IPOs this year. The company, which connects exporters, manufacturers, and customers in China, has tripled their already huge profits this year.
- The company controls 80% of China's online retail market.
- Some say it could be worth as much as $120 billion.
- It has even been suggested that an Alibaba IPO could raise more than Facebook's last year.
The move is a huge blow to the Hong Kong Stock Exchange – the IPO would have brought in millions, if not billions in fees alone. Alibaba was pressuring Hong Kong to allow them to preserve their corporate structure, a condition that the exchange's chairman, Charles Li, was unwilling to meet.
Concerns about shareholder rights eventually prevented him from making any major concessions. So Alibaba appears to be going through with its threat to move to New York if Hong Kong is not sufficiently accommodating.
The company could still choose either of New York's major exchanges – NASDAQ or the NYSE – an expensive feather for the cap of either company. Alibaba has already hired a New York law firm to begin the filings, and an IPO could be underway as early as the start of next year.
Moving to New York has an important advantage for the firm, as it would allow Alibaba to preserve its corporate structure without ceding too much power to shareholders – as Facebook (FB) and Google (GOOG) have both done.
However some have expressed concern that American exchanges are relying too heavily on deregulation to court foreign firms. While some regulations are undoubtedly onerous and unneccessary, some might be pretty helpful.
- Hong Kong requires companies to have at least three years of operating results before they can file an IPO.
- That regulation has prompted hundreds of Chinese firms to take their IPOs to the US instead.
- But more than a hundred Chinese stocks with IPOs on American exchanges have gone out of business.
- And many have been accused of fraud…
- Take ChinaCast Education, where company founders made off with all assets once American shareholders started to get too much control.
Since one of the biggest IPOs of the year is coming from a Chinese company, we decided to run two screens on Chinese stocks to see how they are performing on US exchanges in general. While bears seem to be accurate – it was easy to find companies that appear to be losing money for their investors – it was also possible to find value investments in this space.
First we started with a universe of Chinese stocks that trade on the NYSE. To see how they've been performing, we looked only at companies with a strong positive return on assets (ROA), a measure of how good a company is at generating profits off of its equity and debt.
Next we compared debt levels and P/E ratios to see if the stocks were fairly valued, and that there was no dire trouble on the horizon. Despite being a fairly rigorous screen, we were left with three companies.
Click on the interactive charts below to see data over time.
However, we also found a number of companies on the opposite end of the spectrum – stocks that look heavily leveraged and not so efficient according to their ROA. When we ran a screen that looked for negative ROA, and debt ratios above 0.5 – which is considered high – we were left with four stocks. However, it's still important to remember these figures represent an incomplete picture of how a company is doing.
But that doesn't mean you should ignore the numbers. For many of reasons, China's tech sector is high risk, high reward. It is a rapidly expanding market with huge potential. But it is also much more restrictive of internet use than any other emerging economy.
It is also harder for improprieties amongst corporate higher-ups to reach the public eyes in China. America might de-regulate its exchanges more than Asia, but we also have a freer press than China, and much swifter mechanisms for bringing litigation against dubious companies. Just ask JPMorgan.
Do you think these Chinese stocks worth the risk? Use the interactive list below to begin your own analysis.
1. China Mobile Limited (CHL, Earnings, Analysts, Financials): Provides mobile telecommunications and related services primarily in the Mainland China. Market cap at $227.94B, most recent closing price at $56.70.
3. Zuoan Fashion Limited (ZA, Earnings, Analysts, Financials): Engages in the design, manufacture, and distribution of fashion casual menswear. Market cap at $59.81M, most recent closing price at $2.15.
5. Sinopec Shanghai Petrochemical Co. Ltd. (SHI, Earnings, Analysts, Financials): Engages in the production of polypropylene compound products, polypropylene products, acrylic fiber products, petrochemical products, synthetic fibers, resins and plastics, and petroleum products in China and internationally. Market cap at $2.67B, most recent closing price at $37.05.
6. China Ming Yang Wind Power Group Limited (MY, Earnings, Analysts, Financials): Designs, manufactures, sells, and services megawatt-class wind turbines in China. Market cap at $246.88M, most recent closing price at $2.0.
(List compiled by James Dennin. Quarterly sales sourced from Zacks Investment Research, all other data sourced from Finviz.)
Analyze These Ideas: Getting Started
- Read descriptions for all companies mentioned
- Access a performance overview for all stocks in the list
- Compare analyst ratings for the companies mentioned
- Compare analyst ratings to annual returns for stocks mentioned
- Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
Dig Deeper: Access Company Snapshots, Charts, Filings
- China Mobile Limited(CHL, Chart, Download SEC Filings)
- Giant Interactive Group, Inc.(GA, Chart, Download SEC Filings)
- Zuoan Fashion Limited(ZA, Chart, Download SEC Filings)
- WSP Holdings Ltd. (WH, Chart, Download SEC Filings)
- Sinopec Shanghai Petrochemical Co. Ltd.(SHI, Chart, Download SEC Filings)
- China Ming Yang Wind Power Group Limited(MY, Chart, Download SEC Filings)
- Daqo New Energy Corp.(DQ, Chart, Download SEC Filings)
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