It's been a wild ride for iQiyi (NASDAQ:IQ) shareholders. The Chinese streaming video stock was spun off from search-giant parent Baidu (NASDAQ:BIDU) and hit the market at the end of March last year at $18 per share. Shares have traded below $14.50 and above $46 within the past 12 months, but have more recently been hovering in the $22 range -- a price that values the company at roughly 3.3 times this year's expected sales. That's still a growth-dependent valuation, but it's one that I think presents an attractive entry point. 

Investors should approach iQiyi with the knowledge that it's prone to volatile swings. However, shares present big upside at current prices, and I think there's a good chance that long-term shareholders will see strong returns. With the company due to report earnings on May 16, it's my top stock to buy this month. 

A woman looking at many screens and touching one of them.

Image source: Getty Images.

A leader in China's streaming market

iQiyi has often been referred to as "the Netflix of China." And while the company's business also hinges heavily on producing and collecting video content for distribution on its streaming service, it's fair to say the company has more of a diversified focus than the American streaming video leader.

In addition to its core subscription and ad-supported video services, iQiyi creates and publishes video games, operates social media and short-video platforms, has its own line of virtual-reality headsets, operates a platform for books and graphic novels, and has other elements that set it apart from "the Netflix model." It's also putting a lot of long-term emphasis on building a merchandise licensing business.

So, while the company doesn't have any theme parks or stated plans to get into that business, it's not unreasonable that management would prefer that iQiyi be thought of as "the Disney of China" -- a diversified multimedia company with a range of growth avenues built around its core content offerings.  Simplicity can be an desirable quality for a business, but there's a lot to like about the multimedia assets that iQiyi is creating and putting together and the momentum that's helping to create. 

The company grew annual revenue 52% to reach $3.6 billion and added 36 million new members to its premium subscription service last year. Such rapid expansion has come at a steep cost, with iQiyi posting a whopping $1.3 billion net loss across its first four reported quarters as a publicly traded company -- and it's not surprising that some investors have balked at the losses. That said, iQiyi is playing the long game, and I think the outlook for the business and China's broader streaming video industry remain very promising.

This growth story is still just heating up

iQiyi once again expects to add somewhere in the neighborhood of 36 million subscribers to its paid service this year, suggesting that the company will end 2019 with somewhere near 120 million subscribers. That's up from just 5 million paying members in May 2015. For comparison, Netflix has roughly 150 million global subscribers today and has been focused on subscription-based model for much longer than iQiyi.

iQiyi CEO Gong Yu recently quoted figures suggesting that 69% of American families subscribe to Netflix, while just 20% of Chinese families are subscribed to iQiyi. As long as China's economy continues to grow at a solid clip and per-household discretionary spending rises over the long term, the multimedia company has feasible avenues to making its business consistently profitable and delivering huge returns for shareholders. A report published by Brand Finance named iQiyi as the world's fastest-growing brand in 2018, and big sales and member growth for the company's core subscription business show that it has great momentum and help put its big content and technology spending in context. 

The Chinese media company is seeing strong growth outside its core subscription business as well, and is licensing its original television and film content for distribution in markets like America and Southeast Asia. Sales for the licensing segment increased 137% year over year in the fourth quarter, and subsequent comments from management suggest that the distribution continues to perform well. The company is also ramping up its business in video games, creating new titles based on its own properties and those from third parties, and strengthening its multimedia ecosystem. 

Stemming from its genesis as part of Baidu, iQiyi's multimedia platform has been built with a heavy focus on technology, and that's something I expect will continue to work to the company's advantage. The ongoing relationship with its parent company should also provide an edge. 

Baidu's expertise in search and online advertising, user targeting, and artificial intelligence will likely open up some big opportunities and be key assets for iQiyi in the fast-shifting digital entertainment landscape. As just one example, Baidu is currently positioned to be a leading player in China's self-driving vehicle market -- with its Apollo operating system being adopted as the national standard for autonomous vehicle projects. That could give iQiyi an inside track when it comes to providing in-vehicle entertainment and open up a substantial growth avenue over the next couple of decades.

A top media stock for risk-tolerant investors

China's tech sector is known for being very volatile -- a characteristic that will put some investors off iQiyi and other companies in the space from the onset. Continued volatility in the Chinese tech space, and for iQiyi stock in particular, should probably be treated as a given, but that's why taking the long view is important here. 

The company's strong core streaming video business, strong tech foundations and relationship with Baidu, and other multimedia and international growth initiatives create a wide range of ways to ride the momentum of some of the big trends that will shape China's technology and entertainment industries. Whether or not the stock resumes its bullish run after its first-quarter earnings are published later this month, I'm confident in iQiyi's business and expect big things from the company in the years to come.