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It’s a Pretty Good Time to Buy Momo Stock

James Brumley

Three weeks ago, I suggested in a column that Momo (NASDAQ:MOMO), the developer of a popular Chinese online dating app, was a fine company, but that investors shouldn’t buy MOMO stock yet. I warned that MOMO stock price could easily drop further before beginning to rebound.

I hope you were listening. MOMO shares ended up falling as much as 20% since then, and the MOMO stock price is still about 10% less than what it was then.

MOMO stock still hasn’t fallen as much as I would have liked it to have. In other words, MOMO stock price hasn’t undergone a true capitulation. But it’s acting like it’s dropped about as far as it’s going to for the time being. If you just have to own MOMO stock and are getting antsy about when to buy the shares, there could certainly be worse times to take the plunge.

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What’s Momo?

When most people think of Chinese consumer-tech and online-services stocks, Alibaba Group Holding (NYSE:BABA) and Weibo (NASDAQ:WB) come to mind. And rightfully so. They’re two of the biggest and most pervasive names on that country’s internet landscape.

MOMO is certainly no slouch though, and it’s growing just as quickly as Weibo and Alibaba did in their glory days. In the second quarter, Momo’s revenue jumped 58% year-over-year, and its earnings per share surged more than 70%.

And that pace has been the norm for MOMO in recent quarters.

That’s an impressive feat, given the less-than-new premise of the Momo app. But the company has applied a new twist to the relatively old idea of using the internet to make matches.

Momo is often compared to Match Group (NASDAQ:MTCH), the owner and operator of Match.com and other online-dating venues. It’s not an unfair comparison, though it’s also not an ideal one. MOMO connects users who are geographically close to one another, while still pairing people up based on common interests and preferences.

Streaming live video feeds have also been a big boon for Momo.

MOMO Stock Has Found a Floor

The story of MOMO stock is compelling, but the shares haven’t performed compellingly since late September. Indeed, MOMO stock price has been disappointing since it peaked in mid-June. What gives?

Calling a spade a spade, the weakness of late has much less to do with Momo and far more to do with the environment. Between the impact that America’s newly-imposed tariffs have already had on China and the region’s love/hate relationship with internet stocks, there’s no reason to think the country’s key story stocks would behave any less erratically than their Western counterparts.

The good news is that the volatility of MOMO stock price can be used to your advantage.

When my previous column was published on Oct.16, MOMO stock was flirting with a break below technical support at $34.80, and was poised to potentially test a low as far down as $22.50. The floor at $34.80 was indeed broken, though it’s becoming fairly clear that $22.50 isn’t going to be reached anytime soon. The selling of MOMO stock has been slowing and was firmly reversed on Wednesday when a whole slew of other names dished out the same kind of action. All it took was a kiss of the red, dashed support line that had marked the prior two key lows of MOMO stock price.

Bottom Line on MOMO Stock

Momo boasts the added bullish argument of an oddly low valuation. It is trading at only 10.5 times its forward-looking earnings… a number that’s a bargain for any kind of stock.

And for what it’s worth, analysts agree that MOMO shares are significantly undervalued. The consensus MOMO stock price target is $55.34, 55% above the present price of MOMO stock. The pullback since June hasn’t fazed any of the pros.

That’s not to suggest that Momo shares can’t or won’t somehow drop again. This is a name that’s still dominated by ever-changing sentiment. If history is any indication. though, the sentiment pendulum is close to swinging in a bullish direction. And the fundamentals of MOMO are fairly solid, too.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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