Written by Summary
Since my last article on Tiger, the stock has plummeted along with other Chinese tech companies following news of greater regulatory scrutiny.
Tiger appears to be undervalued and presents an attractive buying opportunity at current depressed price levels. However, the road ahead is riddled with headwinds and uncertainty.
If you’re looking for some exposure to Chinese companies, Tiger might be a potential play with an attractive risk/reward profile.
da-kuk/E+ via Getty Images Since my last article on UP Fintech (NASDAQ: TIGR ), the stock has plummeted along with other Chinese tech companies following news of greater regulatory scrutiny and negative investor sentiment towards Chinese equities. UP Fintech Stock Price (Image source from Google) In this article, I will discuss the unique regulatory risks associated with Tiger’s operations, as well as why they pose a significant risk to investors. I will also be discussing the growth opportunities for Tiger and some of the catalysts I’m keeping a lookout for. Finally, I will attempt to value Tiger using 3 different scenarios to determine a range of outcomes.
It is my opinion that Tiger appears to be undervalued and presents an attractive buying opportunity with its current risk/reward profile. However, the road ahead is riddled with headwinds and uncertainty.
For a quick primer on Tiger Brokers’ business, you can check out my previous article here. I will be reiterating some of the key risks that are most relevant given today’s market environment and investor sentiment. Volatility in Chinese companies
The past year has no doubt been painful for many investors in Chinese equities. I fear it’s not over yet. The Nasdaq Golden Dragon China Index (HXC) , focused on tracking U.S.-listed Chinese companies declined 10% on Thursday. This was the biggest one-day decline since the global financial crisis in 2008.
The downward pressure came from the SEC saying on Thursday that it has named five companies for failing to hire an auditor that could be inspected by U.S. regulators. Under legislation passed in 2020, they could be delisted if U.S. regulators can’t review their audits for three consecutive years.
The accounting dispute is nothing new. China has deemed some information too sensitive to be passed over to the U.S. on national security concerns, particularly for consumer tech companies whose bread and butter is Big Data . Meanwhile, the U.S. wants complete access to the books of U.S.-listed Chinese companies, leading to a stand-off with hundreds of billions of dollars at stake. However, China’s securities regulator said earlier on Friday that it was confident it will reach an agreement with its U.S. counterparts.
Let me be clear, Tiger is cheap for a reason. The road ahead is riddled with headwinds and uncertainty. I have written extensively on the various risks and uncertainty around Tiger’s operations. However, there are many others that I’m still missing out on.
An investment that “everyone” knows to be undervalued is an oxymoron. If everyone knows it’s undervalued, why haven’t they bought it and driven up its price? And if they have bought, how can the price still be low?
The equally oxy-moronic investment version is “Everybody likes that security because it’s so cheap.”
However, if everyone is too scared of Chinese equities to buy them, it creates opportunities to buy them at a price that not only compensates for the regulatory risks but sets the stage for high returns. Key risks
China’s crackdown and regulatory issues
News of fresh regulatory risks in October last year sent Tiger’s shares down 20% after an article on the People’s Daily site said U.S-listed Chinese online brokerages Futu Holdings (NASDAQ: FUTU ) and Tiger Brokers face regulatory risks as China’s new personal data privacy law takes effect in November. “Cross-border online brokerages are driving in China without a driver’s license. They’re conducting illegal financial activities,” Sun Tianqi, head of the Financial Stability Department of the People’s Bank of China (PBOC), said in a speech, according to a transcript released in Oct.
In response to the regulatory deals and news in the media, this is what CEO Tianhua Wu had to say: “Our business model is no different than overseas broker servicing domestic investors. We follow the same KYC, AML procedures and are regulated by relevant security regulators in different regions. “Our innovation is not on business model but more on R&D, which brings some parallel user experience so we can bring more customers. We have always attached great importance to business compliance since our first inception and we have conducted several rounds of self-examination of our business units […]
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