Should Investors Exit From This Chinese Small-Cap Stock – LEJU

Mar 04, 2022 12:00 AM PST | Team Kalkine
Should Investors Exit From This Chinese Small-Cap Stock – LEJU


Leju Holdings Limited

Leju Holdings Limited (NYSE: LEJU) is a company that provides online real estate services. The company offers internet advertising, e-commerce services, and listing services in the People's Republic of China through its subsidiaries. To expedite residential property purchases and home improvement transactions, the company blends its online platform with offline services.

Why should Investors make an Exit?

  • Compliance Below NYSE Standards: LEJU announced on January 31, 2022, that it had received a letter from the New York Stock Exchange (NYSE) dated January 06, 2022, informing it that it had fallen below compliance standards due to the trading price of its American depositary shares. A company will be considered out of compliance with NYSE rule 802.01C if the average closing price as reported is less than USD 1.00 for 30 trading days. After being notified, the company must raise its share price and average share price over USD 1.00 within six months of receiving the notice.
  • Bottomline Pressure: Due to an increase in operational expenses, the company reported a significant loss (attributable to its shareholders) of USD 47.77 million in H1FY21 (ended June 30, 2021) compared to a net profit of USD 1.49 million in H1FY20.
  • Political and Regulatory Risk: The Chinese authorities' crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent the company's operations. This is after the passage of a bill in the US, which could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

Source: Analysis by Kalkine Group

Stock Recommendation:

LEJU's share price has remained on a bearish trend, fallen 79.30% in the past twelve months and is currently leaning close to the lower end of its 52-week range of USD 0.58 to USD 3.16. We have valued the stock using the Price/Earnings per share multiple based relative valuation methodology and arrived at a target price of USD 0.50.

Considering the non-compliance issues, increase in losses, current valuation, and other geopolitical risks, we recommend a "Sell" rating on the stock at the closing price of USD 0.59, up 0.05%, as of March 04, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing.

 Three-Year Technical Price Chart (as of March 04, 2022). Source: REFINITIV, Analysis by Kalkine Group

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.