When investment companies make their 13F filings, in which they are required to report investment holdings, we can see what they bought and sold in the last quarter. If successful investment firms are loading up on certain stocks, it's worth trying to find out why.
Take Tiger Global Management, for example. Founded by Charles Coleman, the firm with an $8 billion market value is known for investing in a relatively small number of stocks. In the fourth quarter of 2013, they only made new purchases in 28 stocks. Yet Tiger Global was impressed enough with Bitauto (NYSE:BITA) to make a new investment of 872,000 shares, worth $27.9 million, in Bitauto in the fourth quarter.
Perhaps Tiger Global was swayed by BITA's growth record, which is remarkably good year over year. Or the firm may have been balancing something else in its portfolio -- which is why we should never blindly follow investment companies' picks.
What is Bitauto, and what does Tiger Global see in it?
If you haven't heard of Bitauto, there's probably a reason: Its business is in China. As Tiger Global's name suggests, it invests around the world. It focuses many of its investments in China and Southeast Asia.
Bitauto was established in the Cayman Islands in 2005 and is headquartered in New York.Bitauto runs Bitauto.com, a website for the growing market of auto consumers in China. It has a ready source of advertising revenue from automakers and dealers. It also distributes pricing and promotional information through 526 partner websites.
The company uses intelligent technology to help its advertisers get the best results, employing proprietary technologies, advertising services, and placement algorithms to help advertisers target appropriate consumer segments.
Last November, Bitauto announced a joint venture with American auto-price information provider Kelley Blue Book. With consumers in China purchasing almost 20 million cars per year, Bitauto expects high demand for auto valuation services.
Bitauto is still a relatively new company, easily buffeted by good news and bad. However, Tiger Global can handle the storm. Coleman is known for making significant investments in tech stocks and young companies; Bitauto is both.
Tiger Global's investments in such companies have paid off in the past. Only you can decide whether young, multinational global tech stocks like Bitauto should be part of your portfolio, too.
How's Bitauto doing?
Bitauto's stock price has ranged from $8.70 to $46.93 in the last 52 weeks. If you had invested in Bitauto for the last 52 weeks, you would have beaten the S&P 500 by more than 300%. No stock goes up at that rate forever. The question is whether it's too late to get in on BITA's rise.
Bitauto's revenue has grown markedly in the recent past. Bitauto's revenue has grown 64% in the last three years, and 59% in the last year alone. Earnings per share went from negative in 2010 to $0.53 in 2012. If the company keeps that up, its continued growth may more than justify its current 43.6 price-to-earnings ratio.
The rollercoaster ride this year
Bitauto's shareholders have been in for a wild ride since Tiger Global purchased its new stake last quarter.
Take the 12% plunge after the release of fourth-quarter results, for example. Although Bitauto smashed analysts' expectations for both earnings and revenue, posting a solid 36.3% increase in quarterly revenue from the prior year, the stock market punished Bitauto shares for lowered expectations for the first quarter of 2014.
That sell-off may have been an overreaction. After all, car sales business slows down in the first quarter of every year, so a company that lives on advertising by automakers and dealers will have reduced expectations, too.
Tiger Global's new investment of 0.35% its portfolio in Bitauto provides a vote of confidence in an up-and-coming company. Tiger Global's objectives and risk tolerance may not be the same as yours. It can be beneficial, however, to see what the big investment firms are doing as we search for investments that fit our own portfolios.