On Tuesday, JPMorgan upgraded Futu Holdings Limited (NASDAQ:FUTU) stock, shifting the rating from Neutral to Overweight. The financial firm also increased its price target for the company's shares to $92.00, up from the previous $62.00. The upgrade comes after observing Futu's strong performance over the recent quarter.
Futu Holdings has experienced a significant rally, with its stock price increasing by 41% over the past three months, notably outperforming the NASDAQ index by 38 percentage points.
JPMorgan attributes the potential for further stock appreciation to several key factors, including the company's robust client growth, asset flow, and transaction volume.
The firm's analysis indicates a positive correlation between Futu's price-to-earnings (PE) multiple and its new client growth. With an expected surge in new paying clients (projected to grow by 200% in the first quarter of 2024 compared to a decline of 8% in fiscal year 2023), JPMorgan anticipates that this will lead to further positive re-rating of the stock.
Despite the company's current PE multiple of 16.1, which is below the historical average of approximately 25 times earnings, JPMorgan suggests that the valuation remains attractive. The firm has raised its earnings per share (EPS) estimates for Futu for the years 2024 to 2026 by 7%, 15%, and 16%, respectively.
JPMorgan also acknowledged Futu's optimistic outlook on its upcoming cryptocurrency business, slated to launch in mid-2024. However, the firm's current price target does not factor in any contribution from this venture to the company's EPS or PE multiple, suggesting that there could be additional upside potential.
The new end-of-year price target of $92 implies a PE multiple of 18 times the estimated earnings for 2024 and represents an approximate 23% upside from the current share price. With these considerations, JPMorgan has upgraded Futu Holdings to an Overweight rating.
InvestingPro Insights
Following JPMorgan's upgrade of Futu Holdings Limited (NASDAQ:FUTU), the InvestingPro platform offers additional insights that align with the financial firm's positive outlook. With a current P/E Ratio of 19.08 and an adjusted P/E Ratio for the last twelve months as of Q4 2023 at 18.79, Futu is trading at a low P/E ratio relative to near-term earnings growth, which reinforces the attractiveness of its valuation. The company has also shown impressive revenue growth, posting a 24.26% increase in the last twelve months as of Q4 2023. This growth trajectory is complemented by a robust gross profit margin of 93.12%, highlighting the company's efficiency in generating income relative to its revenue.
Investors may also find the company's stock performance compelling. Futu's price has seen a large uptick over the last six months, with a total return of 33.62%, and an even more remarkable one-year price total return of 94.4%. According to InvestingPro Tips, analysts predict the company will be profitable this year, which is supported by the fact that Futu has been profitable over the last twelve months. Additionally, for those interested in potential future returns, there are a total of 9 InvestingPro Tips available, which can be explored further for a deeper analysis of Futu's financial health.
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