After Its 350% Gains In 2020, Can FUTU Stock Continue To Rally In 2021?
Among leading growth stocks to watch, Futu Holdings (FUTU Stock Report) is one that is making its presence loud and clear. For starters, the company was founded in 2011 and provides online brokerage services in Hong Kong, Mainland China and the U.S. Futu primarily generates revenue through fees and margin financing.
Rumor has it that Robinhood will have its initial public offering (IPO) in the first quarter of this year. In early December, Reuters reported that the IPO could value Robinhood at over $20 billion. Perhaps you can’t wait for Robinhood’s IPO to take place. Or you think the valuation is on the high side. Now, you have an alternative that you can buy right now. And its market cap is only $8 billion. Futu is similar to Robinhood, but it covers more markets and has been expanding aggressively. Like Robinhood, the company also looks highly at the importance of community and social elements when it comes to investing. And that could present additional channels of monetization opportunities for the company moving forward.
More impressively, the company has strong backing from notable shareholders like Tencent (TCEHY Stock Report), Matrix Holdings, and Sequoia Capital. With the backing of a company like Tencent, coupled with the trending tailwinds, the potential for Futu to cement itself as a leader in China’s mobile and online brokerage is bright indeed.
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Solid Financials Make A Bullish Case For FUTU Stock
No question, Futu was already experiencing rapid growth prior to the pandemic. But you could also say that the pandemic acted as a catalyst, contributing to a spike in growth. So far, for this financial year, the revenue for the online brokerage firm has been sensational. Revenues in 2020 skyrocketed 175% as new customers flocked to Futu’s various platforms in hopes of taking advantage of the world’s best wealth generator: the stock market. The company’s third-quarter earnings were very impressive, beating analysts’ expectations amid an influx of Hong Kong IPOs and the continued increase in retail investors.
“We continued to deliver strong results in the third quarter of 2020,” said Leaf Hua Li, Futu’s chairman, and CEO. “Our China mainland and Hong Kong paying clients both experienced triple-digit growth in the quarter, driven by a number of industry tailwinds, including continued market volatility.”
Of course, the growth rate in 2020 isn’t likely to continue for a long time. But it’s a relief that the company is already profitable. Gross profit margin increased to 80.8% in Q3 2020 from 72.6% in Q3 2019. Net income margin saw an even bigger jump, growing to 42% for Q3 2020 from 8% a year ago. There’s not much reason not to like this one. The strong financial performance gives the company lots of options when it comes to growth. There is little need to sell new shares or raise debt.
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The Surge In Chinese Retail Investors Are Contributing To Futu’s Success
According to data by China Securities Depository and Clearing, in the first five months of 2020 alone, China added 6.44 million new traders. Such numbers are staggering. To put into perspective, this exceeds the total population of Singapore and is almost equal to that of Hong Kong. If you think about it, the rise of trading during 2020 was a global event. And as of June 2020, China had 167 million retail investors. That represents 12% of the country’s total population.
Retail investors accounted for about 70% to 80% of stock transactions on China’s exchanges, according to various estimates. They hold nearly a quarter of the free float of all Chinese stocks. Besides, according to data from Goldman Sachs (GS Stock Report), online trading played a pivotal role in driving up the daily turnover on China’s stock market by almost 60% from the five-year average.
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A New Market Comes With New Opportunities
Futu is on track to launch its Singapore operations by April. On top of that, it is concurrently eyeing expansion in the U.S. this year as part of its global plans. The company has made good progress towards launching its operations in Singapore after receiving the green light from the Monetary Authority of Singapore in October last year.
“Singapore is one of the major financial centres in the world, while it can also serve as a bridge to Southeast Asia,” – Leaf Hua Li, Chairman & CEO of Futu Holdings Ltd.
Of course, the bigger opportunities lie in the U.S. market where Futu is aiming to gain at least a few million users from there, according to the company’s chairman. The company has been relying on third-party service provider Interactive Brokers (IBKR Stock Report) for its U.S. operations. But all this is about to change when the company is done with building its own clearing channel, which will be launched next year.
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Bottom Line on FUTU Stock
Admittedly, FUTU stock price has seen a massive run-up over the past year. No one can be sure where the stock is heading to next. Of course, it could see some correction or could continue to climb higher. But with the strong earnings and user growth, you could expect FUTU stock to continue to climb higher in the long run.
With how fast COVID-19 is reshaping the world globally, Futu has never been more relevant or favorably positioned. With some Chinese companies shying away from listing in the U.S., there could be more business going Futu’s way. The question is, can the company continue to record strong growth and keep its margins up? Will it be able to fend off challengers? Only time will tell. Considering Futu’s robust financials and the growth of the markets it operates in, we could be looking at a long growth runway indeed. It seems to me that FUTU stock is just getting warmed up.
