Futu Holdings stock: is it safe to buy China’s Robinhood?

Futu Holdings (NASDAQ: FUTU) stock price has gone parabolic, rising for three straight weeks, reaching a high of $102.97, its highest point since September 2021.

It has soared by over 75% this year, making it one of the best-performing companies in Wall Street.

Futu and China comeback

Futu Holdings’ share price has done well in the past few days, helped by the recent actions by the Chinese and American officials.

In the United States, the Federal Reserve started cutting interest rates, citing concerns about the labor market and hopes that inflation was moving to the 2% target rate.

The Fed decision marked a major shift among global central banks as they started to abandon their post-Covid restrictions. 

In most cases, global stocks do well when the Fed and other central banks are cutting interest rates as we saw during the Covid-19 pandemic.

Futu shares have also surged because of Beijing’s recent actions, which have propelled Chinese stocks to their highest levels this year.

The People’s Bank of China (PBoC) decided to cut interest rates and also reduce its reserve requirements, a move that will unlock over $100 billion in funds.

It is also encouraging pension funds and other companies to increase their stock purchases.

Meanwhile, China’s politburo led to more stimulus by Beijing in its attempt to engineer an economic boom. Altogether, the Hang Seng index rose to $21,482, a 45% increase from the lowest level this year.

Most Chinese technology companies like PDD Holdings, Nio, and Alibaba have also surged hard in the past few days.

This also explains why the Futu share price has gone parabolic.

Futu’s growth is continuing

Futu Holdings is a company that most Americans have never heard about.

Yet, it is one of the biggest fintech firms in China valued at over $14 billion.

It is a company similar to Robinhood in that it helps people invest in Chinese and global stocks, especially American ones.

It runs applications like Futubull and MooMoo.

Futubull is an online brokerage and wealth management tool that lets people buy assets like stocks and options.

It also has a platform where people can grow their wealth well.

Futubull is mostly used by people in China.

Moomoo, on the other hand, is an application similar to Futubull, with the only difference being that it is designed for overseas customers.

It lets these customers buy and trade stocks, options, ETFs, and ADRs.

Futu, therefore, has a business model similar to that of Robinhood, an online brokerage that has revolutionised the US industry by introducing commission-free trades. 

It has also benefited from the ongoing demand for American stocks as Chinese ones crashed in the past few months.

Many people in China also want an exposure to well-known American brands like Nvidia and Amazon.

Futu’s products have become highly popular in China and other countries, which explains why its revenues have surged recently.

Its annual revenue has risen from $124 million in 2019 to over $1.165 billion in the last financial year.

Futu makes its money in two main ways: interest rates and capital markets. In interest, it invests its cash in low-cost government bonds.

It also earns money from brokerage commissions.

Earnings download

Futu Holdings released relatively encouraging financial results in August.

The number of paying clients rose by 28% in the second quarter to 2.04 million, while those registered in its platforms rose by 19% to 4.04 million.

Additionally, the total amount of client assets in Futu jumped by 24.3% to over HK579 billion, equivalent to over $72 billion. Most importantly, the volume of transactions in the platforms surged by 69% to H$1.62 trillion. 

Therefore, these numbers led to higher revenues, which rose by 25.9% to $400 million while its net income rose to $154 million, meaning that Futu is a high-margin company.

Futu is not followed closely by American analysts.

Those analysts expect its revenue to grow by 12.9% this year to $1.45 billion, followed by 12% to $1.62 billion.

Futu is relatively undervalued company, likely because of its China-exposure risks.

Its forward price-to-earnings ratio stands at 18.2, much lower than Robinhood’s 33.

The other big risk is that the industry is highly competitive, with most of this competition coming from WeBull, one of the most popular companies in the industry.

Read more: Here’s why Futu, AMD, and LiveRamp stocks are rising

Futu Holdings stock price analysis

FUTU chart by TradingView

The weekly chart shows that the Futu share price made a strong bullish comeback in the past few days.

It jumped above the upper side of the ascending red channel.

The stock has also moved above the 50-week Exponential Moving Averages (EMA) while the MACD and the Relative Strength Index (RSI) have drifted upwards.

Therefore, Futu Holdings seems like a cheap contrarian company to invest in as global stocks continues their recovery.

If this happens, the next point to watch will be at $100.

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