Online brokerage firm Futu Holdings Limited (FUTU), which is headquartered in Admiralty, Hong Kong, is known as the ‘Robinhood of China,’ enabling investors to trade on multiple exchanges worldwide. The company reported solid second-quarter financial results and demonstrated strong international expansion. 

Its revenues increased 129.3% year-over-year to $203.10 million, and its number of users reached 15.5 million, an increase of 66.8% year-over-year.

However, the stock has lost 25.2% in price over the past month and 46.7% over the past six months to close Friday’s trading session at $71.80. Also, it is currently trading 64.8% below its 52-week high of $204.25, which it hit on February 10, 2021. Investors appear concerned about the company’s potential regulatory risks with China's new personal data privacy law taking effect on November 1. So, the company’s near-term prospects look uncertain.

China's New Regulation

FUTU could face regulatory risks as China's new personal data privacy law takes effect on November 1. The company may be ill-equipped to comply with new laws requiring better protection of consumers' personal digital data.

Stretched Valuation

In terms of forward P/S, FUTU’s 11.13x is 220.5% higher than the 3.47x industry average. Likewise, its 3.86x forward P/B is 214.5% higher than the 1.23x industry average of 1.23x. Furthermore, the stock’s 26.15x non-GAAP P/E is 122.4% higher than the 11.76x industry average.

POWR Ratings Reflect Bleak Prospects

FUTU has an overall D rating, which equates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. FUTU has a D grade for Value, which is in sync with its higher-than-industry valuation ratios.

The stock has an F grade for Stability, which is consistent with its 1.27 beta. Furthermore, FUTU has an F grade for Sentiment.

FUTU is ranked last among 12 stocks in the Financial Marketplaces industry. Click here to access FUTU’s ratings for Growth, Momentum, and Quality as well.

Bottom Line

FUTU is currently trading below its 50-day and 200-day moving averages of $88.46 and $121.43, respectively, indicating a downtrend. And it could keep losing in the near term on regulatory concerns. Because the stock looks overvalued at the current price level, we think it is best avoided now.

How Does Futu Holdings (FUTU) Stack Up Against its Peers?

FUTU has an overall POWR Rating of D, which equates to a Sell rating. This rating is inferior to its peers within the Financial Marketplaces industry, such as Singapore Exchange Limited (SPXCY), Intercontinental Exchange Inc. (ICE), and Deutsche Börse AG (DBOEY), which all are rated C (Neutral).

FUTU shares were trading at $72.56 per share on Monday afternoon, up $0.76 (+1.06%). Year-to-date, FUTU has gained 58.60%, versus a 22.96% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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