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Bull of the Day: Hello Group Inc. (MOMO)

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Hello Group (MOMO - Free Report) , a Zacks Rank #1 (Strong Buy), has rallied strongly since bottoming out in May of last year. After a pullback into March, the bullish phase for MOMO stock looks set to continue as it has been hitting a series of higher highs on increasing volume. Shares have also benefitted from a resurgence in emerging market equities.

MOMO is ranked favorably by our Zacks Style Scores with a best-in-class ‘A’ rating in each of our Zacks Value and Momentum categories. This indicates further upside is likely based on relative strength and promising valuation metrics. The company is part of the Zacks Internet – Software industry group, which currently ranks in the top 20% out of approximately 250 Zacks Ranked Industries. Because this group is in the top half of all industries, we expect it to outperform the market over the next 3 to 6 months, just as it has year-to-date:

Zacks Investment Research
Image Source: Zacks Investment Research

Also note the favorable characteristics for this industry group below:

Zacks Investment Research

Zacks Investment Research
Image Source: Zacks Investment Research

Historical research studies suggest that approximately half of a stock’s price appreciation is due to its industry grouping. In fact, the top 50% of Zacks Ranked Industries outperforms the bottom 50% by a factor of more than 2 to 1. It’s no secret that investing in stocks that are part of leading industry groups can give us a leg up relative to the market. By focusing on leading stocks within the top 50% of Zacks Ranked Industries, we can dramatically improve our stock-picking success.

Company Description

Hello Group provides mobile-based social and entertainment services in the People’s Republic of China. Its Momo platform includes a mobile application that connects people and facilitates interactions based on locations and interests. MOMO also operates Tantan, a social and dating application that enables users to find each other and establish relationships, while also providing live video and chatrooms.

In addition, MOMO’s platform allows its users to livestream a variety of content and activities such as talent shows, singing, dancing, mobile karaoke, online parties, and other video and audio-based interactive experiences. Formerly known as MOMO Inc., the company changed its name to Hello Group in August 2021. Hello Group was incorporated in 2011 and is headquartered in Beijing.

Earnings Trends and Future Estimates

MOMO has surpassed earnings estimates in each of the past four quarters, with an average earnings surprise of 31.94%. The social entertainment company most recently reported fourth-quarter earnings back in March of $0.36/share, beating the Zacks Consensus Estimate of $0.26 by 38.46%.

Analysts covering Hello Group are in agreement and have raised their future earnings estimates across the board. Looking into the current year, analysts have raised their 2023 EPS estimates by 29.51% in the past 60 days. The Zacks Consensus Estimate now stands at $1.58/share, reflecting potential growth of 18.8% relative to last year.

Zacks Investment Research
Image Source: Zacks Investment Research

Let’s Get Technical

MOMO shares have advanced more than 100% off the bottom from last year. Only stocks that are in extremely powerful uptrends are able to make this type of price move while the general market remains volatile. This is the kind of stock we want to include in our portfolio – one that is outperforming and receiving positive earnings estimate revisions.

StockCharts
Image Source: StockCharts

Notice how the 200-day (blue line) moving average has begun to slope upward. After a pullback into March, the stock has been making a series of higher highs and appears set to resume its uptrend. With both strong fundamentals and technicals, MOMO is poised to continue its outperformance.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. As we know, Hello Group has recently witnessed positive revisions. As long as this trend remains intact (and MOMO continues to deliver earnings beats), the stock will likely continue its bullish run this year.  

Bottom Line

MOMO boasts a best-in-class ‘A’ rating for our overall VGM Zacks Style Score. The Zacks Rank #1 (Strong Buy) stock has vastly outperformed the market over the past year. A resurgence in emerging market stocks adds to the bullish sentiment.

Robust fundamentals combined with a strong technical trend certainly justify adding shares to the mix. Backed by a leading industry group and healthy history of earnings beats, it’s not difficult to see why this company is a compelling investment. Investors would be wise to consider MOMO as a portfolio candidate if they haven’t already done so.


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