Can iQiyi Stock Bounce Back After Last Week’s 10% Drop?

One of the market’s hottest winning streaks is over. Shares of iQiyi (NASDAQ: IQ) proved mortal last week, sliding 10%. The shares of China’s leading streaming-video platform had treated investors to four consecutive weeks of double-digit percentage gains — doubling in the process — before last week’s retreat.

The week began with the same kind of momentum that had pushed the stock higher through the four previous weeks. iQiyi announced that it had won online broadcasting rights in China for the U.S. Open golf tournament heading into the trading week, a move that now finds it with streaming rights for all four of the golf majors. The company’s stock would go on to hit an all-time high on Monday, closing 9% higher. It would then go on to hit another all-time high on Tuesday, and at that point was trading 15% higher for the week. But that was as good as it got for the bulls. The shares would undergo a sharp correction in the final two trading days of the week.

Image source: iQiyi.

Taking a breather

Although iQiyi’s streak of double-digit percentage gains is over at four weeks, another streak continues: iQiyi shares have posted double-digit percentage moves for five consecutive weeks.

The correction was swift. The stock’s 12% drop on Thursday — its largest one-day decline in its brief publicly traded history — came on no material news. That’s fair. A lot of the gains that the bulls have been treated to over the past few weeks have followed modest news developments. A film short-listed for an award and opening an on-demand cinema are welcome events, but even the most ardent of bulls would have to concede that the moves didn’t warrant the hundreds of millions in market-cap gains that followed.

News out of the stunning four-week rally that ended last week included the launch of an artificial intelligence competition, the announcement of new members, and the rollout of a digital wallet. These are largely ordinary events in the grand scheme of running a thriving digital entertainment business.

A blowout quarterly report — iQiyi’s first earnings results since its IPO — may have set the rally in motion in late April. But the stock’s been ascending on the growing awareness of growth investors that there’s a rapidly expanding streaming giant in China that now commands an audience of more than 60 million premium subscribers and hundreds of millions of ad-based viewers.

We need to frame last week’s stumble accordingly. The stock has still soared 81% over the past five weeks. Stretch that window to seven weeks, and iQiyi has skyrocketed 124%. You can’t win every week, and corrections are natural. We’ll have to wait a month for the next financial update, but it’s hard to not remain bullish on the stock despite last week’s sell-off.

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Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.

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