Investors looking for seasonal trading patterns in stocks can probably scribe case studies to the hot-and-cold phenomenon that Momo (NASDAQ:MOMO) has become over the past couple of years. The Chinese social video specialist has had a strong first half for the third year in a row, beating the market with a 53% surge through the past six months. If history repeats, the next six months will be cruel.

Like Sunday in the Park With George or the Atlanta Falcons in Super Bowl LI -- look up either reference if they don't ring a bell -- Momo is falling apart in the second half. It couldn't hold on to its monster gains in the first half of 2017 and 2018, and now it's trying to avoid a three-peat in 2019.

  • 2017 first half: up 139%
  • 2017 second half: down 44%
  • 2018 first half: up 78%
  • 2018 second half: down 45%
  • 2019 first half: up 53%
A white reception desk at a Momo office.

Image source: Momo.

Breaking with tradition

Making divergent swings in five six-month periods may not seem like much of a sample size, but the extreme nature of the moves -- up at least 53% on the way up, and down at least 44% on the way down -- makes this a spectacle worth watching. Seasonality isn't a factor. Momo has posted a sequential decline in quarterly revenue just once over the past six years.

One also can't argue that Momo tends to fall short in terms of meeting Wall Street expectations during the latter half of the year. The live-streaming and online dating specialist has consistently landed ahead of analyst profit targets with ease during its topsy-turvy run.

Quarter EPS (Estimate) EPS (Actual) Surprise
Q1 2017 $0.32 $0.44 38%
Q2 2017 $0.31 $0.35 13%
Q3 2017 $0.38 $0.45 18%
Q4 2017 $0.46 $0.53 15%
Q1 2018 $0.50 $0.69 38%
Q2 2018 $0.61 $0.66 8%
Q3 2018 $0.52 $0.53 2%
Q4 2018 $0.51 $0.59 16%
Q1 2019 $0.54 $0.61 13%

Data source: Yahoo! Finance. EPS = earnings per share.

The positive surprises may be slightly better during the fourth and first quarters -- the two periods that get reported during the first six months of the calendar year -- but that still doesn't explain the slide from July through December. The average beat during the fourth and first quarter has been 24%, but you don't dump a stock just because it averaged a 10% beat during the other two reporting periods. 

There are some coincidences baked into the volatility. Chinese growth stocks generally sold off in the second half of last year on trade war concerns. They have been bouncing back since late December. However, until the trend reverses -- and it may very well do that this time around -- it's easy to see why history watchers are concerned. The stock is already trading slightly lower three trading days into the second half.

The good news for Momo investors is that the stock is cheap. The shares are trading for just 12 times this year's projected profit and 10 times next year's target. Given Momo's heady growth -- revenue rose 35% in its latest quarter despite decelerating in eight of the past nine quarters -- can it really get even cheaper? If Momo's earnings live up to expectations, a stock decline in the coming months would dip year-ahead profit forecasts into the single digits. Do you see that happening, especially knowing how Momo has historically beaten Wall Street estimates? The historical trend over the past 30 months suggest "sell in June before the six-month swoon" is the right course, but it's as good a time as any to break the curse. Momo is a buy here, even in the face of the recent history of second-half bloodbaths. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.