Longtop Financial Technologies Ltd. (LFT) recently rebounded from a key trend line to move back within range of its all-time high at $41.77, helped by the company’s blowout Q3 results from early February and rising estimates.
Company Description
Longtop Financial Technologies Ltd. together with its subsidiaries, designs and delivers software solutions and information technology services to the financial services industry in China. The company was founded in 1996 and has a market cap of $1.96 billion.
Longtop has been on fire for the past few years, seeing its revenue and income jump by leaps and bounds since 2007 on the back of the very bullish Chinese economy. Longtop’s third-quarter results from February 8 showcased its growing profile, highlighting explosive top-line growth, a strong balance sheet and strict expense management procedures.
Third-Quarter Results
Revenue for the period was up 66.2% from last year to $55 million. Earnings also came in strong at 49 cents, 23% ahead of the Zacks Consensus Estimate. Revenue for the first three quarters of the fiscal year are up 57% from last year to $126 million.
Longtop is seeing strong demand for its software development services from three of China’s largest banks, referred to as the Big Four, where sales were up 42% Y-O-Y to $18.5 million. Software development revenue from “Other Banks” was even better, up 62% from last year to $18 million.
The company is also seeing gains in its smaller segments, where software development revenues from Insurance was up 125% to $8.3 million.
Longtop’s attention to managing its costs showed up in its operating expenses, coming in at 19.6% of revenue, a pinch better than expected and in line with last year.
Lots of Cash, No Debt
Longtop also has the advantage of a very strong balance sheet, with a cash position of $363 million and no long-term debt.
Estimates
The analysts were encouraged by the strong results, sending the current-year estimate up 13 cents to $1.26. The next-year estimate is up 9 cents in the same time to $1.45, a solid 15% growth projection.
Based on the current-year estimate, shares of LFT are trading with a forward P/E multiple of 27X, a premium to the overall market but in line with its peer group. Its P/B multiple of 4.3X is a premium to the industry average but below the S&P’s 5X. It’s ROE of 18% crushes the industry average of 10%.
2-Year Chart
Shares of LFT have been trending higher since bottoming out just below $13 in early 2009. Since then shares have topped off above $41, recently rebounding from a key trend line to resume its upward trend. Look for support from the trend on any weakness, take a look below.
Michael Vodicka is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Surprise Trader Service. Zacks Investment Research
