iQIYI trending lower ahead of earnings next week
I have written about Chinese firm iQIYI (Nasdaq: IQ) before. I wrote about the online video platform back at the beginning of July when the stock was trading up near the $22 level and I was concerned about a fall in the stock price at that time. Here it is a few months later and I am getting a bearish signal on the stock once again.
While the signal in July and the current signal are based on technical factors, they are backed by the poor fundamentals of the company. iQIYI went public on March 28, 2018 and it has yet to turn a profit—it has lost money in every single quarter. Sales have been increasing, but earnings have yet to reach positive territory and they are expected to be worse for the third quarter of 2019 than they were in the third quarter of 2018. The company reported a loss of $0.63 last year and analysts expect a loss of $0.72 per share when the company reports on November 6.
Sales have increased by 52% per year over the last three years, but they only increased by 11% in the second quarter. Despite the sales growth, earnings declined by 4% in the second quarter. This is a major concern in my opinion. When a young company continues to grow sales, but can't grow earnings, I immediately become worried about the management efficiency. When you combine the sales growth with the profit margin and the return on equity, you get the SMR rating and iQIYI's SMR rating is awful.
The Tickeron SMR rating for this company is 100, indicating weak sales and an unprofitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The score of 100 is the worst possible score a stock can get.
The Tickeron Profit vs. Risk Rating for this company is 100, indicating that the returns do not compensate for the risks. IQ’s unstable profits reported over time resulted in significant drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating for the industry is 85, placing this stock worse than average. This rating is also the worst possible rating a stock can get.
The Tickeron Price Growth Rating for IQ is 83, indicating slightly worse than average price growth. The stock has grown at a lower rate over the last 12 months as compared to S&P 500 index constituents. A rating of 1 points to highest price growth (largest percent return) while a rating of 100 points to lowest price growth (smallest percent return).
Given this fundamental backdrop, it's hard to look at the stock with a bullish view and the chart doesn't really help matters. We see on the daily chart how the stock has been trending lower since February and now a downward sloped trend channel has formed. The stock didn't quite reach the upper rail of the channel, but with the stochastic readings being in overbought territory and making a bearish crossover, I don't think the stock will reach the upper rail this time around.
The Tickeron Trend Prediction Engine generated a bearish signal on iQIYI on October 28. The signal showed a confidence level of 69% and past predictions have been successful 72% of the time. The signal calls for a decline of at least 4% within the next month.
If there is a saving grace for iQIYI, it's the fact that the stock is not overly loved at this time. There are 22 analysts covering the stock at this time and only eight have the stock rated as a "buy". There are 12 "hold" ratings and two "sell" ratings. The overall buy percentage of 36.4% is well below average.
The short interest ratio is currently at 8.45 and that is much higher than average stock. Both the short interest ratio and the analysts' ratings are indicating there is extreme pessimism toward the stock at this time. Expectations seem to be pretty low for the stock, but given the chart and the fundamentals, the sentiment appears to be warranted.
Aroon Indicator for IQ shows an upward move is likely
IQ's Aroon Indicator triggered a bullish signal on April 17, 2024. Tickeron's A.I.dvisor detected that the AroonUp green line is above 70 while the AroonDown red line is below 30. When the up indicator moves above 70 and the down indicator remains below 30, it is a sign that the stock could be setting up for a bullish move. Traders may want to buy the stock or look to buy calls options. A.I.dvisor looked at 201 similar instances where the Aroon Indicator showed a similar pattern. In of the 201 cases, the stock moved higher in the days that followed. This puts the odds of a move higher at .
Technical Analysis (Indicators)
Bullish Trend Analysis
The Stochastic Oscillator suggests the stock price trend may be in a reversal from a downward trend to an upward trend. of 63 cases where IQ's Stochastic Oscillator exited the oversold zone resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are .
The 10-day moving average for IQ crossed bullishly above the 50-day moving average on March 13, 2024. This indicates that the trend has shifted higher and could be considered a buy signal. In of 16 past instances when the 10-day crossed above the 50-day, the stock continued to move higher over the following month. The odds of a continued upward trend are .
Following a 3-day Advance, the price is estimated to grow further. Considering data from situations where IQ advanced for three days, in of 272 cases, the price rose further within the following month. The odds of a continued upward trend are .
Bearish Trend Analysis
The 10-day RSI Indicator for IQ moved out of overbought territory on April 08, 2024. This could be a bearish sign for the stock. Traders may want to consider selling the stock or buying put options. Tickeron's A.I.dvisor looked at 31 similar instances where the indicator moved out of overbought territory. In of the 31 cases, the stock moved lower in the following days. This puts the odds of a move lower at .
The Momentum Indicator moved below the 0 level on April 12, 2024. You may want to consider selling the stock, shorting the stock, or exploring put options on IQ as a result. In of 90 cases where the Momentum Indicator fell below 0, the stock fell further within the subsequent month. The odds of a continued downward trend are .
The Moving Average Convergence Divergence Histogram (MACD) for IQ turned negative on April 12, 2024. This could be a sign that the stock is set to turn lower in the coming weeks. Traders may want to sell the stock or buy put options. Tickeron's A.I.dvisor looked at 44 similar instances when the indicator turned negative. In of the 44 cases the stock turned lower in the days that followed. This puts the odds of success at .
Following a 3-day decline, the stock is projected to fall further. Considering past instances where IQ declined for three days, the price rose further in of 62 cases within the following month. The odds of a continued downward trend are .
IQ broke above its upper Bollinger Band on April 05, 2024. This could be a sign that the stock is set to drop as the stock moves back below the upper band and toward the middle band. You may want to consider selling the stock or exploring put options.
Fundamental Analysis (Ratings)
The Tickeron SMR rating for this company is (best 1 - 100 worst), indicating strong sales and a profitable business model. SMR (Sales, Margin, Return on Equity) rating is based on comparative analysis of weighted Sales, Income Margin and Return on Equity values compared against S&P 500 index constituents. The weighted SMR value is a proprietary formula developed by Tickeron and represents an overall profitability measure for a stock.
The Tickeron Valuation Rating of (best 1 - 100 worst) indicates that the company is fair valued in the industry. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization. This rating is based on the following metrics, as compared to industry averages: P/B Ratio (2.432) is normal, around the industry mean (5.400). P/E Ratio (15.630) is within average values for comparable stocks, (87.119). Projected Growth (PEG Ratio) (0.132) is also within normal values, averaging (2.822). IQ has a moderately low Dividend Yield (0.000) as compared to the industry average of (0.040). P/S Ratio (0.937) is also within normal values, averaging (29.645).
The Tickeron Price Growth Rating for this company is (best 1 - 100 worst), indicating fairly steady price growth. IQ’s price grows at a lower rate over the last 12 months as compared to S&P 500 index constituents.
The Tickeron PE Growth Rating for this company is (best 1 - 100 worst), pointing to worse than average earnings growth. The PE Growth rating is based on a comparative analysis of stock PE ratio increase over the last 12 months compared against S&P 500 index constituents.
The Tickeron Profit vs. Risk Rating rating for this company is (best 1 - 100 worst), indicating that the returns do not compensate for the risks. IQ’s unstable profits reported over time resulted in significant Drawdowns within these last five years. A stable profit reduces stock drawdown and volatility. The average Profit vs. Risk Rating rating for the industry is 89, placing this stock worse than average.
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a provider of internet video streaming services
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