IQiyi Stock Is Poised to Rally Above $18

Spoiler alert: IQiyi (NASDAQ:) stock has a sustainable rally brewing and the bulls are close to triggering it.

IQiyi Stock Is a Play on China's Millennial Craze (IQ)

Source: Jarretera /

Wall Street referred to IQ stock in its early days as the Netflix (NASDAQ:) of China. This was a badge of honor because it meant that IQiyi was in the right business. All content producers have now completely committed to switching their dissemination methods to direct delivery on devices.

Netflix proved that the world wants to consume content online. This started the cord-cutting movement and everyone else is in hot pursuit — but they are still playing catch up to NFLX. Big names like Disney (NYSE:) are at its heels, about to release a new streaming service.

But whenever there is a major shift in a company’s methods, there are new opportunities. This allows companies like IQ to carve out their niches in the field. IQiyi provides Netflix-like services in China, and that is a great market to serve because it is massive. So IQ stock’s potential is undeniable. The company also has a social media aspect to it where fans can engage with each other about the content.

IQ stock came out of the gate like a rocket. Wall Street was smitten with a slew of Chinese IPOs so IQ tripled quickly. But just like many new fad tickers, its sheen faded and the stock corrected hard. IQiyi gave back its entire rally and is now trading inside its initial IPO range.

How to Trade IQiyi Stock

Now that the media frenzy has ebbed, the real opportunities are emerging. In the beginning investors were agog with the concept of Chinese IPOs, but now each company has to trade each on its own merit.

IQ stock so far appears to be on a decent path, so this is a time for a trade opportunity that could also double as an investment. Usually I require trades to have a tight stop to avoid large losses. But in this case I could make an exception and extend the time commitment.

Technically, if IQ stock bulls can beat $19 per share, then they have the opportunity to start a sustainable $3 rally from there. However it is important for them to stay above $17 per share, or they risk retesting recent lows.

On the weekly chart, this opportunity is clearest. The price action shows that the range is tight, so with a little help from the general markets, this rally can be a big home run for IQ stock investors.

This is not a cheap stock. But for now — and since the whole industry is still young — I still consider IQiyi to be a growth company. So for that reason I continue to give it a pass on its profitability metrics. I judge its sales and put less emphasis on its earnings.

Moreover, IQ stock sells at only 3.7 times sales which is almost the same as Amazon (NASDAQ:), and half as expensive as Netflix stock, so it is not outrageously bloated. This is not to say that IQ is cheap. But it is to say that it is miles cheaper than the ridiculous valuations found in cannabis or fake meat stocks.

The Bottom Line on IQ Stock

Officially, this more of a trading opportunity than an investment thesis for IQ stock. This is especially true because the S&P 500 is within only two percentage points of all-time high. This by definition leaves a lot of froth to come out of the stock market in, general let alone IQiyi stock.

Mathematically the upside potential is greater than the downside risk, but success is not a guarantee. There is plenty of room to shed in case of a market-wide correction, even in IQ stock at these low levels.

This is a risky trade inside a conservative portfolio. And there are important stock levels to watch that would be short-term triggers. Iqiyi stock is bound by $18.50 above and $17 per share below. A breach of either side would carry momentum in that direction.

Nicolas Chahine is the managing director of . As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.

The post appeared first on InvestorPlace.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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