Insights

Why Shares of Futu Holdings Shot Up This Week

What happened

This week, shares of the Chinese online brokerage platform Futu Holdings (NASDAQ: FUTU) had climbed 22.5% higher as of market close Thursday after the company reported recent earnings results earlier this week.

Chinese stocks also rebounded as the Chinese government continued to show signs of easing up on Chinese tech stocks from a regulatory perspective.

So what

For the first quarter of 2022, Futu reported diluted earnings per American depositary share of $0.49 on total revenue of nearly $210 million, both of which beat earnings estimates from analysts.

Futu saw the total number of users on its platform grow to 18.1 million, up roughly 27% year over year. Additionally, total paying clients grew to more than 1.3 million, up nearly 68% year over year.

In its last earnings report, Futu said it expected to add 200,000 new paying clients in all of 2022. In the first quarter, Futu added 82,000 paying clients, putting the company well ahead of where it needs to be to achieve management’s initial guidance. More than 80% of Futu’s new paying clients live in Hong Kong and other foreign markets.

Also this week, various media outlets reported that Chinese regulators may soon drop investigations of several large Chinese tech companies, including the large ride-hailing company DiDi Global. This is yet another sign that the Chinese government is adopting a much friendlier regulatory position toward Chinese tech companies. 

Now what

Futu is showing solid growth to start the year. Despite the run this week, the stock is still down almost 69% over the last year. Trading at 24 times forward earnings, Futu isn’t exactly cheap, but this is a fast-growing company in a massive market.

Obviously, you need to understand the regulatory landscape to invest in Chinese stocks, but I think there could be more upside ahead if things keep trending in this direction.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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