Shares of Huya (NYSE:HUYA) have been on fire over the past few weeks. It’s not just Huya stock either, as a number of Chinese equities are starting to gain some bullish momentum. Of course, it helps that the U.S. and China are seemingly finding common ground in recent trade talks. While the current trade spat may not directly impact a company like Huya or iQiyi (NASDAQ:IQ), it does impact the Chinese economy.
As you may or may not have read at this point, the Chinese economy is stumbling a bit. Granted, its growth remains robust compared to many developed nations, but manufacturing and other industries are taking a hit. Some companies are moving production out of the country due to the trade war. As a result, that hurts Chinese workers, which hurts the economy. Auto sales — which enjoyed two decades of growth — are stagnating. There are numerous data points suggesting the slowdown.
I wouldn’t say the sky is falling when it comes to the Chinese economy, but the nation is more vulnerable than many previously thought. The two countries have been hammering out talks for three days now, the last of which was unscheduled and suggests the meetings are progressing towards a solution. That presents both an opportunity and risk. While trade negotiations are playing the hero right now, they can just as easily play the villain. Should negotiations fall apart, look for it to deal a devastating blow to names like Huya, JD.com (NASDAQ:JD), iQiyi, Alibaba (NYSE:BABA) and others.
That being said, should investors like Huya stock?
Evaluating Huya Stock
Huya is sort of like the Twitch of China. For those that don’t know what Twitch is, it’s an online game-streaming platform owned by Amazon (NASDAQ:AMZN). Given the growth in gaming and e-sports, it’s no surprise that Twitch and other streaming platforms are benefiting as well.
China’s stance on video games is not as lenient as it is here in the U.S. Benefiting Huya was China’s decision to ban Twitch. On the flip side, it also took a more strict approach to video games and which ones would be approved for consumers. Less games equals less streaming opportunities for Huya, which in turns hurts its growth.
But all is not lost. Last quarter the company reported earnings of 8 cents per share and revenue of almost $186 million. That doubled analysts’ earnings estimates and topped revenue expectations by more than $7 million, which rose by almost 120% year-over-year. User growth also showed impressive marks, with monthly active users up 14.6% and mobile monthly average users up over 28%.
For the year, analysts expect earnings of 25 cents per share on revenue of $667 million. In 2019, estimates call for earnings to nearly double to 47 cents per share on revenue of $1.02 billion, up 53% year-over-year. If Huya can achieve those numbers, it’s hard to imagine its stock trading below current levels.
Hint: here are 8 other Chinese stocks with promising long-term future.
Trading Huya Stock
Huya stock went public in May at $12 per share and hit $50 per share a month later. This quadrupling in share price obviously meant Huya stock needed to cool off, and that’s exactly what it’s down.
Shares have been trapped in a nasty downtrend for almost eight months. However, that came to an end a few days ago when Huya stock broke out over $16.50. Not only did the move propel Huya over the 21-day moving average, but also over downtrend resistance (blue line). It quickly tore higher, climbing 25% in five days and running into possible resistance near $20.
Huya and other high-flying Chinese stocks have the potential to really rip if and when the U.S. and China put together an official trade deal. But until then, I’m still skeptical of the group, regardless of the breakouts.
I am eventually looking for Huya stock to breakout over $20 to $21, which would put Huya over its 100-day moving average. But it wouldn’t be the worst thing for the stock to pullback and/or consolidate for a bit now. Over the 21-day and 50-day moving averages, and the name is still attractive on the long side. It’s imperative for the bulls to keep Huya over prior downtrend resistance and the $15 mark.
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