China has been a tough market to invest in over the past two years. The trade war, the slowdown in the domestic economy, the ongoing unrest in Hong Kong, and the recent coronavirus outbreak all made it tough to recommend Chinese equities.

However, that persistent pessimism also caused investors to overlook some stocks that were irrationally priced relative to their growth potential. Today, I'll highlight three Chinese stocks that are too cheap to ignore: JOYY (NASDAQ:YY), Momo (NASDAQ:MOMO), and Vipshop (NYSE:VIPS).

A stock trading display on a busy street.

Image source: Getty Images.

A live streaming leader

JOYY, the company formerly known as YY, owns one of the largest live video streaming platforms in China. Its core YY Live platform mainly hosts user-created entertainment, music, sports, and e-learning videos.

JOYY also owns a majority stake in Huya (NYSE:HUYA), the largest video game streaming platform in China. Last March, JOYY fully acquired Singapore-based start-up Bigo, which added the live streaming app Bigo Live, the messaging app IMO, and the short video app Likee to its core services. JOYY generates most of its revenue from YY Live, but its "other" revenue -- which comes from Huya, its mobile gaming social network Hago, and Bigo's apps -- is quickly climbing.

JOYY's average mobile MAUs (monthly active users) hit 470.1 million last quarter, and 78% of those users were outside of China thanks to its takeover of Bigo. Its total number of paying users on YY and Huya also grew 14% and 29% year-over-year, respectively, during the quarter.

Analysts expect JOYY's revenue to rise 54% this year and another 26% next year. Its earnings are expected to dip 47% this year, mainly due to its integration of Bigo, but rebound 30% next year, which is a solid growth rate for a stock that trades at less than 12 times forward earnings.

The "Tinder of China"

Momo is frequently dubbed the "Tinder of China" because its two core apps, Momo and Tantan, are typically used for online dating. Momo's core app allows users to find each other based on their personal profiles, or watch live streaming videos and buy virtual gifts for their favorite broadcasters. Tantan, which it acquired in 2018, is a clone of Match Group's Tinder. Tantan currently pays Match royalties based on its number of U.S. users.

Momo still generates most of its revenue from live video streams on its namesake app, which grew its MAUs 3% annually to 114.1 million last quarter. Its total number of paid users, including Tantan, grew 7% to 13.4 million.

A person uses an online dating app.

Image source: Getty Images.

To continue expanding, Momo redesigned its core app to better organize live streams, launched a "nobility" system which awarded high-paying users with ostentatious titles, and added speed-dating "flash chats" to Tantan. It also cracked down on offensive ads on Momo and Tantan to steer clear of regulators last year.

Wall Street expects those efforts to boost Momo's revenue 32% this year and another 18% next year. Its earnings are expected to grow 27% this year and 20% next year, which are high growth rates for a stock that trades at just nine times forward earnings.

An overlooked e-commerce underdog

Vipshop was one of the first online flash sale marketplaces in China, but it's often overshadowed by bigger e-commerce companies like Alibaba, JD.com (NASDAQ:JD), and Pinduoduo.

Vipshop only controls about 1% of China's e-commerce market, according to eMarketer. However, it's backed by JD and its top stakeholder Tencent (OTC:TCEHY), which co-invested $863 million in the company to widen their moats against Alibaba in late 2017.

JD integrated Vipshop's marketplaces into its own platform, while Vipshop launched e-commerce mini programs on Tencent's WeChat, the most popular messaging app in China. Tencent also bundled Vipshop's Prime-like "Super VIP" membership plans with subscriptions for Tencent Video. Thanks to those efforts, nearly a quarter of Vipshop's new customers now come from JD and Tencent's platforms.

Vipshop's active customers grew 21% annually to 32 million (including 2.5 million Super VIP members) last quarter, and its total orders rose 33% to 127.6 million. Its total revenue and non-GAAP earnings rose 10% and 140%, respectively, indicating that it wasn't being crushed by discount rivals like Pinduoduo.

Wall Street expects Vipshop's revenue to rise 8% this year and 7% next year. Its earnings, buoyed by gross margins that consistently remain above 20%, are expected to rise 66% this year and 27% next year. Those are stellar growth rates for a stock that trades at less than 12 times forward earnings.

The key takeaways

For now, investors should expect JOYY, Momo, and Vipshop to remain under pressure from the uncertain impact of the Wuhan coronavirus. Yet all three stocks remain cheap relative to their long-term growth, and investors who are willing to ride out the near-term volatility could be well-rewarded for their patience.