Elevator Pitch
I rate UP Fintech Holding Limited (NASDAQ:TIGR) stock as a Sell. My earlier July 4, 2023, article for TIGR touched on the company’s mobile application removal in the Mainland Chinese market, and its Hong Kong business’ below-expectations newly funded accounts in the first quarter of this year.
With the latest update, I highlight UP Fintech’s impressive share price run in recent weeks and analyze whether TIGR’s positive share price momentum can be sustained.
UP Fintech’s 2H 2023 earnings are expected to be lower than what the company achieved in the first half of the year. TIGR’s valuations also appear to be expensive based on price-to-sales and Price/Earnings-to-Growth or PEG valuation metrics. This explains my decision to lower the rating for UP Fintech from a Hold to a Sell.
TIGR’s Recent Stock Price Outperformance And Positive Valuation Re-Rating
For the past month, UP Fintech’s share price performance has been amazing, and its valuations have re-rated in a significant way.
TIGR’s shares jumped by +45.0% in the last one month, while the broader market as represented by the S&P 500 rose by just +0.5% in the same time frame. UP Fintech’s last done stock price of $5.12 as of September 11, 2023, is only -12% below its 52-week peak of $5.80 recorded on September 6 this year during intraday trading.
UP Fintech’s consensus forward next twelve months’ price-to-sales valuation multiple more than doubled from its one-year low of 1.45 times registered on May 18, 2023, to 3.02 times (source: S&P Capital IQ) at the end of the September 11, 2023, trading day.
The market also values TIGR at 19.1 times the consensus forward the next twelve months’ normalized P/E, even though the company’s consensus FY 2024-2025 EPS CAGR estimate is +16.9% as per S&P Capital IQ data. Therefore, UP Fintech’s PEG valuation multiple is 1.13 times (19.1 divided by 16.9) or greater than 1, which suggests that the company’s shares are overvalued.
Furthermore, the current sell-side analysts’ consensus target price of $5.60 points to a modest +9.4% upside for UP Fintech stock based on its last traded share price of $5.12 as of September 11.
Recent Quarterly Results Weren’t As Good As What Headline Numbers Suggest
TIGR’s stock price outperformance in the recent month was largely attributable to the company’s better than expected Q2 2023 financial results. UP Fintech revealed its second quarter financial performance on August 29 this year before the market opened, and TIGR’s share price surged by +28.5% on the same trading day.
But I am of the opinion that UP Fintech’s Q2 2023 performance wasn’t as good as what the company’s headline financial numbers seemed to imply.
As per S&P Capital IQ data, TIGR turned around from an operating loss of -$1.9 million in the second quarter of 2022 to generate an operating profit of +$10.1 million for the most recent quarter. More significantly, UP Fintech’s actual Q2 2023 operating income surpassed the analysts’ consensus financial forecast of $7.5 million by +35%. Also, TIGR’s net profit attributable to shareholders expanded by +66% QoQ to $13.2 million in Q2 2023.
But it is important to note that UP Fintech’s Q2 2023 headline financial numbers benefited from favorable foreign exchange rate movements, a rising rate environment and lower marketing expenses, and these are positive factors which might not be repeated in subsequent quarters.
UP Fintech reported $7.8 million of other income in Q2 2023. At the company’s Q2 2023 earnings call, TIGR explained that the company’s other income for the recent quarter was mainly driven by “USD appreciation against other currencies” and “interest income” derived from “short-term bonds.”
Separately, TIGR’s Q2 2023 results were also boosted by a decline in Customer Acquisition Cost or CAC. UP Fintech’s CAC decreased by -5% QoQ from $171 for Q1 2023 to $162 for Q2 2023. The company referred to the $162 CAC as “historically low levels” at its second quarter earnings briefing, and explained that the lower CAC in Q2 was attributable to the fact that “market conditions” were not “suitable for major marketing campaigns.”
2H 2023 Financial Performance Is Likely To Be Inferior To That Of 1H 2023
UP Fintech delivered a net profit attributable to shareholders of $21.3 million in the first half of this year. The market’s consensus full-year FY 2023 bottom line forecast for TIGR is $37.9 million as per S&P Capital IQ data. In other words, the market is expecting UP Fintech’s earnings to contract by -22% HoH (Half on Half) in the second half of the current year.
I am of the view that expectations of a weaker second half performance for UP Fintech is realistic.
One factor is that UP Fintech’s other income might be much lower going forward (as compared to Q2 2023), assuming that the U.S. dollar weakens and interest rates peak in the future.
The other factor is that TIGR’s CAC will very likely be higher in the quarters ahead, as the company ramps up marketing (versus a historical low CAC of $162 in Q2) when the market environment becomes more favorable.
Concluding Thoughts
UP Fintech’s shares are rated as a Sell now. In my view, TIGR’s stock price has run ahead of fundamentals, taking into account its current valuation multiples and its 2H 2023 prospects.
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