Meituan stock price has surged: technicals point to a 50% surge

Meituan’s stock price has staged a strong comeback as investors embraced a risk-on sentiment. It soared to a high of H$176.5 on Monday, its highest swing since January 2023. It has risen by over 191% from its lowest level this year, making it one of the best-performing companies in the Hang Seng index.

Meituan is doing well

Meituan is a leading Chinese company that runs the biggest food and grocery delivery services in the country. 

The company has also expanded its services to include travel bookings and the entertainment industry. 

Over the years, it has become one of the largest tech firms in China with a market cap of over $135 billion.

This growth happened because of its large market share in China and its record of strong growth. Also, the growth was mostly because of the ever-expanding China’s middle class. 

Nonetheless, the stock remains substantially lower than its all-time high of H$460. This price action was because of the elevated competition from Alibaba’s Ele.me and Didi Chuxing, which have entered into the industry.

The company was one of those targeted by Chinese regulators. In 2021, the company was forced to pay a $530 million fine on anti-trust allegations. Also, these regulators pushed it to lower the commissions it charges restaurants. In response, Meituan slashed commissions in half, capping them to just 1 yuan per order. 

Therefore, the Meituan stock price has bounced back as investors have embraced the new normal of slow revenue growth.

Most importantly, there are signs that demand is returning while Chinese regulators have started to ease their stance on these companies, including Alibaba. 

Meituan is not the only delivery company that has bounced back. In the UK, the Deliveroo share price has soared by 116% from its lowest point since 2022. Similarly, the Doordash stock has soared by 240% from its 2024 lows, while India’s Zomato is one of the best-performing companies in the Nifty 50.

Also, Meituan stock has jumped in line with the ongoing recovery of companies in the Hang Seng index, which has jumped to its highest level in months. 

Meituan growth is returning

The most recent financial results showed that Meituan’s business was doing modestly well this year as it continued to gain market share. 

Its revenues rose by 100% to over RMB 82 billion or $11.2 billion from RMB 62 billion in the same period last year. Its operating profit soared to RMB 11.25 billion or $1.5 billion.

Meanwhile, its revenues for the first half of the year were RMB 155 billion while its operating profit jumped to RMB 16.46 billion. This growth happened as the number of on-demand delivery transactions jumped by 14.2% to over 6.1 billion.

Most of Meituan’s revenue comes from its delivery services followed by commission and online marketing solutions. 

Additionally, the company has a strong balance sheet with over RMB 54.7 billion in cash and equivalents and RMB 78.5 billion in short-term treasury investments, bringing the total to RMB 132 billion or $18 billion. 

Meituan stock price analysis

Meituan chart by TradingView

Fundamentally, Meituan is a leading company with a strong market share in the second-biggest economy in the world. It will likely continue to do well as the Chinese government implements stimulus to reboot the economy.

The company will also benefit as global central banks slash interest rates. As a result, many investors will likely move to risky assets like Chinese equities. 

Nonetheless, there are concerns that Meituan has become an overvalued company with a trailing price-to-earnings ratio of 44.3, which is relatively high. It also has a forward EV-to-EBITDA ratio of 35, higher than the sector median of 11.

Also, the company is facing substantial competition, which will likely affect its recovery in the next few years. 

The weekly chart shows that the Meituan share price bottomed at H59.20 earlier this year. It has rebounded and moved above the key resistance point at $129.6, its highest point on May 13. 

The stock has moved above the 23.6% Fibonacci Retracement level. It has also moved above the 200-week and 50-week Exponential Moving Averages (EMA). 

Therefore, the path of the least resistance for Meituan shares is upward, with the next point to watch being at the 50% retracement point at $260, which is about 50% above the current level. This view will be confirmed if it rises above the 38.2% retracement point.

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