Meituan: A Growth Stock Poised for a 40% Upside

Meituan's stock price has slightly rebounded today, currently trading around 170 HKD, indicating a potential 40% upside compared to the target price given by Morgan Stanley. This rebound suggests that investors are optimistic about the company's growth prospects despite recent market volatility. In this article, we will explore the factors contributing to Meituan's stock price outlook and discuss the company's growth potential.



Meituan's recent stock price performance can be attributed to several key factors:

1. Market Sentiment and Economic Conditions: The overall market sentiment and economic conditions in China have been volatile, which can impact the performance of companies like Meituan. The recent economic slowdown and regulatory changes may have contributed to the initial decline in Meituan's stock price.
2. Retail Sales Data: The release of retail sales data by the National Bureau of Statistics showed a 4.8% year-on-year increase in October, which was higher than expected. This positive data may have contributed to the rebound in Meituan's stock price, as it indicates increased consumer spending and potential growth in the company's core local commerce business.
3. Morgan Stanley's Target Price Increase: Morgan Stanley raised its target price for Meituan to HKD 215, representing a potential 40% increase from the current stock price. This adjustment suggests that Morgan Stanley believes Meituan has growth advantages despite the economic slowdown and has a good chance of reaching the most bullish target price next year. This positive analyst sentiment may have contributed to the rebound in Meituan's stock price.
4. Strong Financial Performance: Meituan's strong financial performance, including a 22.4% year-on-year increase in revenue and a more than threefold increase in profit compared to the same period last year, indicates the company's resilience and growth potential. This positive financial performance may have contributed to the rebound in Meituan's stock price.
5. Expansion and Strategic Partnerships: Meituan's expansion into new markets, such as the Middle East, and strategic partnerships, such as its collaboration with Walmart for 30-minute deliveries in China, further boost its growth prospects. These initiatives may have contributed to the rebound in Meituan's stock price, as they indicate the company's adaptability and potential for future growth.

Meituan's growth potential and market position justify Morgan Stanley's bullish target price. The company's rapid profit growth among Chinese internet stocks, with a 36% compound annual growth rate in operating performance from 2024 to 2026, demonstrates its strong financial performance. Additionally, Meituan is capturing a significant retail opportunity worth 2 trillion HKD, which is expected to drive its revenue growth. The recent retail sales data, showing a 4.8% year-on-year increase in October, supports the notion that Meituan's core local business is performing well. Morgan Stanley's revenue and profit projections for Meituan, including a Core Local Commerce (CLC) revenue of RMB 68.6 billion and an operating profit of RMB 13.9 billion for the third quarter of 2024, indicate the company's strong financial performance and growth prospects.

Meituan's expansion into new markets and strategic partnerships further boost its growth prospects. The company's strong user base and merchant network, combined with its adaptability to changing consumer preferences, contribute to its growth potential. Meituan's strategic initiatives in local commerce, such as its expansion into the Middle East and collaboration with Walmart for 30-minute deliveries in China, aim to enhance its market share and long-term profitability.

In conclusion, Meituan's stock price outlook is influenced by regulatory changes and market trends, with the company demonstrating adaptability and resilience in the face of economic challenges and regulatory shifts. Meituan's strong financial performance, growth potential, and strategic initiatives contribute to its stock price rebound and justify Morgan Stanley's bullish target price. Investors should consider capitalizing on the current levels to buy more shares before Meituan potentially revisits its recent highs.