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Why Shares of OneConnect Financial Tech Are Falling Today

By Bram Berkowitz – Aug 4, 2021 at 12:57PM

Key Points

  • Revenue came up short of analyst expectations and analysts at Morgan Stanley downgraded the stock.

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The company reported earnings from the second quarter of this year.

What happened

Shares of OneConnect Financial Technology (OCFT -1.76%) had fallen more than 25% as of 11:40 a.m. EDT after the company reported earnings results for the second quarter of the year. Analysts at Morgan Stanley also downgraded the stock.

So what

OneConnect, which provides a technology-as-a-service platform for Chinese financial institutions, reported diluted earnings per share equivalent to a loss of nearly $0.05 on total revenue equivalent to $149.7 million. EPS beat expectations, but revenue missed analysts' average estimates of nearly $168 million by about 11%.

"The management team worked diligently in the second quarter, to address changes from further regulatory tightening, the shift in customer needs and the operating environment," Ye Wangchun, chairman and CEO of OneConnect, said in a statement. "Despite these challenges, our revenue rose by 25% year over year to RMB968 million [the renminbi is the currency of China], benefiting from our diversified suite of solutions."

Additionally, analysts from Morgan Stanley earlier today downgraded OneConnect's stock from an overweight rating, or outperform, to equal weight, which means it will perform similarly to the overall market. Morgan Stanley also significantly cut its price target from $19 to $7.50 per share. OneConnect currently trades around $5.53 per share.

Person's hand drawing a squiggly red line moving downward.

Image source: Getty Images.

Now what

Stock movement going forward should be volatile, as Chinese regulators have shown they can quickly make things difficult for Chinese companies trading on U.S. exchanges.

That said, OneConnect has a consensus rating among analysts of buy and an average price target of $22.75 per share, and the net loss ratio at the company continues to narrow. So, with shares trading below $6, this could certainly be an opportune time to get in on the stock.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

OneConnect Financial Technology Co., Ltd. Stock Quote
OneConnect Financial Technology Co., Ltd.
$0.62 (-1.76%) $0.01

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