Should You Buy the Dip in Futu Holdings?

Online brokerage firm Futu Holdings Limited (FUTU – Get Rating), which is headquartered in Admiralty, Hong Kong, is known as the ‘Robinhood of China,’ enabling investors to trade on multiple…

exchanges worldwide. The company reported solid second-quarter financial results and demonstrated strong international expansion.

Its revenues increased 129.3% year-over-year to $203.10 million, and its number of users reached 15.5 million, an increase of 66.8% year-over-year.

However, the stock has lost 25.2% in price over the past month and 46.7% over the past six months to close Friday’s trading session at $71.80. Also, it is currently trading 64.8% below its 52-week high of $204.25, which it hit on February 10, 2021. Investors appear concerned about the company’s potential regulatory risks with China’s new personal data privacy law taking effect on November 1. So, the company’s near-term prospects look uncertain.

China’s New Regulation

FUTU could face regulatory risks as China’s new personal data privacy law takes effect on November 1. The company may be ill-equipped to comply with new laws requiring better protection of consumers’ personal digital data.

Stretched Valuation

In terms of forward P/S, FUTU’s 11.13x is 220.5% higher than the 3.47x industry average. Likewise, its 3.86x forward P/B is 214.5% higher than the 1.23x industry average of 1.23x. Furthermore, the stock’s 26.15x non-GAAP P/E is 122.4% higher than the 11.76x industry average.

POWR Ratings Reflect Bleak Prospects

FUTU has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on…

 

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