Every experienced investor, like a jaded poker player, has stories akin to bad beat tales – great investments that got away. This post is not one of those tales. Seven odd years ago I did have a look at a few of the then hot Chinese internet shares – SINA and SOHU in particular. Both were growing solidly and were valued with big future growth assumed. Given the heated valuations and the lack of a credible history at that time, I passed. I was also uncomfortable with the political risk factor.
It was therefore with interest that in recent months I noticed a few stories about stock increases in some familiar Chinese internet names. A quick look through the key statistics on Yahoo confirms that valuations remain aggressive with PEs based upon 2013 projected earnings in the 20 to 40 range across a sample of firms (albeit not as wild as in the past). Quarterly revenue, if not profit, growth also looks healthy at 20% to 30%. The graph below shows the share prices of some of the better known Chinese internet firms over the past seven years.
Although I suspect my risk appetite will never be comfortable with valuations in this sector, at some stage, I’d like to dig deeper into the quality firms in this space to figure out if there is any appropriate risk/reward investment angle that I could live with (and at what entry level on valuation). If nothing else, the rise and fall over 2011 to 2012 of SINA and SOHU looks intriguing (for old time’s sake!).