Autohome: A Value Opportunity From China

Autohome (

ATHM, Financial) (HKSE:02518, Financial) provides an online platform that makes it easy for car buyers to connect with car sellers and for car makers to advertise their products in the People’s Republic of China. According to their website, Autohome is “the leading online destination for automobile consumers in China.”

In a recent statement, Autohome said the following:

“The ability to reach a large and engaged user base of automobile consumers has made Autohome a preferred platform for automakers and dealers to conduct their advertising campaigns. Further, the Company’s dealer subscription and advertising services allow dealers to market their inventory and services through Autohome’s platform, extending the reach of their physical showrooms to potentially millions of internet users in China and generating sales leads for them.”

The company is based in Beijing, and as markets there spent most of the year selling off dramatically, this is one stock that may now be considered a potential value opportunity.

Autohome’s market capitalization is big at $3.59 billion. The enterprise value for the business is $1.15 billion. Autohome is now trading at a 3% discount to its book value. The price-earnings ratio is 7, which is well below that of the stock market as a whole. For example, the S&P 500 has a Shiller price-earnings ratio of 38 right now.

Earnings per share this year have risen by 6.1%. For the past five years, the EPS growth rate has been 27.1%. Analysts expect a positive year for 2022, but they also predict that things will not be quite as rosy for the next five years.

Indeed, the automobile market is still a cyclical one, so investors need to remain cautious. Authome seems well-positioned to weather an economic downturn, as its financial strength is good. There is no long-term debt on its balance sheet, and the current ratio sits at 7.2. The price-sales ratio is 2.72 and the price-to-free-cash-flow ratio is 4.62. These are relatively low figures compared to U.S.-based stocks in the same or similar sectors.

The GuruFocus summary of financials for Autohome shows 10 good signs, two medium warning signs and one severe warning sign:

Average daily volume for the equity on the New York Stock Exchange is 1,019,600. The short float sits at 2.99%.

Autohome has fallen in price this year from a high of $145 to its current price of $28. With a drop of that size, investors will want to be careful examining the fundamentals, future prospects and political risks. Both the U.S. and Chinese governments have been threatening to delist Chinese stocks from U.S. exchanges, so those interested in this stock may want to look into ways to invest in the Hong Kong listing.

This stock reminds me of a famous saing from

Warren Buffett (Trades, Portfolio), which goes that you want to be “fearful when others are greedy and greedy when others are fearful.” It that’s the case, a closer look at Autohome may be appropriate. Here’s a stock trading below its book value with a very low price-earnings ratio, no long-term debt, high profitability and a dividend yield upwards of 3%.

It may be impossible to say when the selloff in Chinese equities will end, but just looking at the basic metrics for valuation can be a heads up for those paying attention. Just like bull markets don’t last forever, bear markets don’t last forever either. That’s why investors can benefit from focusing on valuation rather than market timing.