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Why Bitauto Hldg Ltd Shares Temporarily Plunged Today

By Steve Symington – Mar 6, 2014 at 7:12PM

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Is Bitauto's drop meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Bitauto Hldg Ltd (BITA) plunged by as much as 12% early Thursday, then recovered to close down just 3% after the Chinese online automotive content and marketing specialist released better-than-expected fourth-quarter results.

So what: Quarterly revenue rose 36.3% year over year, to $79.9 million, which translated to adjusted net income of $0.40 per diluted share. Analysts, on average, were looking for earnings of $0.36 per share on sales of $77.6 million.

However, Bitauto expects current-quarter revenue to fall sequentially in the range of $53.9 million to $55.5 million, with adjusted earnings per share of $0.14 to $0.15. 

Now what: Those expected sequential drops might look bad at first glance, but Bitauto was quick to point out they reflect typical seasonality in the business. Sure enough, the revenue and earnings ranges represent increases over the same year-ago period of 36.1% to 40.3% and 51.8% to 60.7%, respectively.

To be sure, the stock seems to reflect much of that optimism already, trading around 34 times this year's expected earnings and eight times last year's sales. However, that premium may be justified given Bitauto's solid top- and bottom-line growth. If Bitauto can sustain its momentum going forward, there's no reason the stock won't be able to reward patient long-term investors from here.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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