Is Cheetah Mobile volatility declining?

The rollercoaster ride of investing often brings unexpected twists and turns, and Cheetah Mobile's stock is no exception. With a market valuation of $2.28 billion, the software company's real value is estimated at $1.8 billion, indicating a potential overvaluation. The NYSE-listed company has seen its share of volatility, with a possible upside price of $6.4 and a downside risk that plummets to just $0.0228. The fiscal year-end in December could bring more clarity to the company's financial health. However, the current analyst consensus leans towards a 'Sell' recommendation, with one analyst already signaling a sell-off. The naive expected forecast value of $2.31 suggests a cautious outlook. As the saying goes, "don't put all your eggs in one basket." It might be time for investors to reconsider their stakes in Cheetah Mobile, given the current market dynamics and the company's performance. Cheetah Mobile is currently generating an expected daily return of 0.3653%, with an assumed risk (volatility on return distribution) of 4.0896% over a 90-day horizon. As many investors are showing increased interest in the software space, it's appropriate to revisit Cheetah Mobile. Our focus will be on determining whether the current expected returns justify the volatility of Cheetah Mobile's stock.
Published over six months ago
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Reviewed by Rifka Kats

Cheetah Mobile currently has liabilities amounting to 48.13 million, with a Debt to Equity (D/E) ratio of 0.01. This low ratio may suggest that the company is not leveraging borrowing to its full potential. The company's current ratio stands at 1.88, which is within the standard range for its sector. While debt can be beneficial for Cheetah Mobile, problems may arise if the company struggles to pay it off, either through raising new capital or generating free cash flow. In such a scenario, Cheetah Mobile's shareholders could potentially lose their entire investment if the company fails to meet its legal obligations to repay its debt. However, a more common scenario is when companies like Cheetah Mobile issue additional shares at discounted prices, thereby diluting the value of existing shares. In this context, debt can be a more effective tool for Cheetah Mobile to invest in high-return growth opportunities. When evaluating Cheetah Mobile's use of debt, it is important to consider it in conjunction with the company's cash and equity positions.

Main Ideas

Investors considering their stakes in Cheetah Mobile should take note of the company's high volatility. With a Coefficient of Variation at 1.2K and a Mean Deviation of 2.76, the stock exhibits significant price fluctuations, which could mean potential for high returns, but also high risk. The company's Downside Deviation stands at 3.76, indicating a substantial potential for loss. Moreover, the company's Value At Risk is at -4.6, suggesting a potential loss in value. Therefore, investors should carefully reconsider their stakes in Cheetah Mobile, keeping in mind the high volatility and potential for loss.
Volatility is a rate at which the price of Cheetah Mobile or any other equity instrument increases or decreases for a given set of returns. It is measured by calculating the standard deviation of the annualized returns over a given period of time and shows the range to which the price of Cheetah Mobile may increase or decrease. In other words, similar to Cheetah's beta indicator, it measures the risk of Cheetah Mobile and helps estimate the fluctuations that may happen in a short period of time. So if prices of Cheetah Mobile fluctuate rapidly in a short time span, it is termed to have high volatility, and if it swings slowly in a more extended period, it is understood to have low volatility. Please read more on our technical analysis page.

How important is Cheetah Mobile's Liquidity

Cheetah Mobile financial leverage refers to using borrowed capital as a funding source to finance Cheetah Mobile ongoing operations. It is usually used to expand the firm's asset base and generate returns on borrowed capital. Cheetah Mobile financial leverage is typically calculated by taking the company's all interest-bearing debt and dividing it by total capital. So the higher the debt-to-capital ratio (i.e., financial leverage), the riskier the company. Financial leverage can amplify the potential profits to Cheetah Mobile's owners, but it also increases the potential losses and risk of financial distress, including bankruptcy, if the firm cannot cover its debt costs. The degree of Cheetah Mobile's financial leverage can be measured in several ways, including by ratios such as the debt-to-equity ratio (total debt / total equity), equity multiplier (total assets / total equity), or the debt ratio (total debt / total assets). Please check the breakdown between Cheetah Mobile's total debt and its cash.

Cheetah Mobile Gross Profit

Cheetah Mobile Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing Cheetah Mobile previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show Cheetah Mobile Gross Profit growth over the last 10 years. Please check Cheetah Mobile's gross profit and other fundamental indicators for more details.

Cheetah Mobile Volatility Drivers

Cheetah Mobile unsystematic risk is unique to Cheetah Mobile and usually not directly affected by the market or economic environment. An example of unsystematic risk is the possibility of poor earnings or a layoff due to coronavirus. One may mitigate nonsystematic risk by buying different securities in the same industry or by buying in different sectors. For example, if you have a position in Cheetah Mobile you can also buy Tuniu Corp. You can also mitigate this risk by investing in the information technology sector as well as in companies having nothing to do with it. This type of risk is also called diversifiable risk and can be understood from analyzing Cheetah Mobile important indicators over time. Here we run a correlation analysis between relevant fundamental ratios over at least ten year period to find a relationship in the way they react to changes in Cheetah Mobile income statement and balance sheet. Here are more details about Cheetah volatility.
-0.850.530.940.870.160.580.590.290.48-0.79-0.79-0.870.020.4-0.440.160.780.290.15-0.17-0.84-0.35
-0.85-0.56-0.84-0.82-0.43-0.19-0.2-0.29-0.390.730.730.79-0.2-0.390.35-0.25-0.61-0.2-0.25-0.150.790.33
0.53-0.560.660.470.14-0.13-0.140.340.08-0.42-0.42-0.42-0.190.25-0.270.0-0.040.74-0.09-0.02-0.40.28
0.94-0.840.660.840.280.410.410.220.31-0.72-0.72-0.810.060.35-0.44-0.080.720.45-0.09-0.29-0.78-0.36
0.87-0.820.470.840.40.440.46-0.020.19-0.94-0.94-0.980.410.5-0.450.130.720.260.12-0.02-0.97-0.45
0.16-0.430.140.280.4-0.09-0.09-0.44-0.35-0.24-0.24-0.310.570.1-0.14-0.150.190.03-0.13-0.01-0.31-0.59
0.58-0.19-0.130.410.44-0.091.0-0.140.22-0.42-0.42-0.5-0.130.16-0.270.050.7-0.170.07-0.42-0.48-0.42
0.59-0.2-0.140.410.46-0.091.0-0.130.23-0.44-0.44-0.52-0.10.17-0.270.060.71-0.190.08-0.41-0.5-0.42
0.29-0.290.340.22-0.02-0.44-0.14-0.130.79-0.05-0.05-0.01-0.390.060.010.43-0.020.040.410.280.010.47
0.48-0.390.080.310.19-0.350.220.230.79-0.21-0.21-0.24-0.220.1-0.120.340.39-0.160.370.12-0.22-0.01
-0.790.73-0.42-0.72-0.94-0.24-0.42-0.44-0.05-0.211.00.98-0.38-0.560.42-0.33-0.62-0.22-0.3-0.210.980.32
-0.790.73-0.42-0.72-0.94-0.24-0.42-0.44-0.05-0.211.00.98-0.38-0.560.42-0.33-0.62-0.22-0.3-0.210.980.32
-0.870.79-0.42-0.81-0.98-0.31-0.5-0.52-0.01-0.240.980.98-0.38-0.530.46-0.21-0.73-0.23-0.19-0.050.990.45
0.02-0.2-0.190.060.410.57-0.13-0.1-0.39-0.22-0.38-0.38-0.380.520.21-0.020.27-0.130.020.2-0.38-0.53
0.4-0.390.250.350.50.10.160.170.060.1-0.56-0.56-0.530.520.490.240.280.190.220.2-0.53-0.17
-0.440.35-0.27-0.44-0.45-0.14-0.27-0.270.01-0.120.420.420.460.210.490.03-0.35-0.20.050.110.440.18
0.16-0.250.0-0.080.13-0.150.050.060.430.34-0.33-0.33-0.21-0.020.240.03-0.04-0.20.990.8-0.210.21
0.78-0.61-0.040.720.720.190.70.71-0.020.39-0.62-0.62-0.730.270.28-0.35-0.04-0.080.03-0.31-0.71-0.72
0.29-0.20.740.450.260.03-0.17-0.190.04-0.16-0.22-0.22-0.23-0.130.19-0.2-0.2-0.08-0.27-0.18-0.190.07
0.15-0.25-0.09-0.090.12-0.130.070.080.410.37-0.3-0.3-0.190.020.220.050.990.03-0.270.78-0.190.12
-0.17-0.15-0.02-0.29-0.02-0.01-0.42-0.410.280.12-0.21-0.21-0.050.20.20.110.8-0.31-0.180.78-0.080.26
-0.840.79-0.4-0.78-0.97-0.31-0.48-0.50.01-0.220.980.980.99-0.38-0.530.44-0.21-0.71-0.19-0.19-0.080.43
-0.350.330.28-0.36-0.45-0.59-0.42-0.420.47-0.010.320.320.45-0.53-0.170.180.21-0.720.070.120.260.43
Click cells to compare fundamentals

Is Cheetah Mobile valued appropriately by the market?

The firm reported the previous year's revenue of 784.62 M. Net Loss for the year was (353.2 M) with profit before overhead, payroll, taxes, and interest of 631.5 M. Every cloud has a silver lining, and for investors, it might be time to reconsider their stakes in Cheetah Mobile. The company's stock has been marked by volatility, with a standard deviation of 4.08 and a downside deviation of 3.76. However, the company's current valuation stands at a robust $1.14B, backed by a healthy current asset base of $468.4M and retained earnings of $505.08M. The probability of bankruptcy is relatively high at 42.30%, but the company's strong cash flow from operations, which stands at $102.81M, provides a buffer. The company's price to earnings ratio is low at 4.11X, suggesting that the stock may be undervalued. However, the negative return on equity of 0.23 and a market risk adjusted performance of -2.6 indicate potential risks. Investors should weigh these factors carefully before making a decision.

Will Cheetah pull back in January 2024?

Cheetah Mobile's recent Jensen Alpha of 0.34 indicates a positive risk-adjusted performance, suggesting that the company has been generating excess returns after adjusting for the risk involved. However, as we enter January 2024, investors should remain cautious. Despite the strong performance, the potential for a pullback due to market volatility and other macroeconomic factors cannot be ruled out. It's crucial for investors to closely monitor the stock's performance and market trends before making any investment decisions. As of December 25th, Cheetah Mobile's risk-adjusted performance stands at 0.0633, with a Mean Deviation of 2.76. The company's technical analysis provides a methodology to utilize historical prices and volume patterns to determine a pattern that approximates the direction of the firm's future prices. In other words, this information can be used to ascertain if the firm will indeed mirror its model of historical prices and volume momentum, or if the prices will eventually revert. We were able to analyze nineteen technical drivers for Cheetah Mobile, which can be compared to its competitors. Please verify Cheetah Mobile's Jensen Alpha, and the relationship between the coefficient of variation and potential upside to determine if Cheetah Mobile is priced correctly, given that the market reflects its regular price of 2.28 per share. Also, please review Cheetah Mobile's total risk alpha, which is currently at -0.48, to validate whether the company can sustain itself in the future.

Our Takeaway on Cheetah Mobile Investment

Although some firms under the internet content & information industry are still a bit expensive, Cheetah Mobile may offer a potential longer-term growth to insiders. To conclude, as of the 25th of December 2023, our research shows that Cheetah Mobile is a rather very risky investment opportunity with a below average odds of distress in the next two years. From a slightly different view, the entity currently appears to be overvalued. Our overall 90 days Buy-Hold-Sell recommendation on the firm is Strong Sell.

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Editorial Staff

This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Vlad Skutelnik do not own shares of Cheetah Mobile. Please refer to our Terms of Use for any information regarding our disclosure principles.

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