We came across a bullish thesis on Wetouch Technology Inc. (WETH) on Substack by JJ Investment Club. In this article, we will summarize the bulls’ thesis on WETH. Wetouch Technology Inc. (WETH)’s share was trading at $1.60 as of Nov 5th. WETH’s trailing P/E was 4.71 according to Yahoo Finance.
Copyright: dolgachov / 123RF Stock Photo
WeTouch Technology, a Chinese company specializing in medium to large-sized projected capacitive touchscreens, presents an intriguing investment opportunity due to its undervalued stock and recent stock repurchase announcement. The company, headquartered in Sichuan, has consistently maintained profitability over the past five years, boasting a 30%+ operating profit margin due to its low-cost, order-based business model. This model, which limits inventory buildup, reduces potential financial losses, and preserves its $90 million cash reserve. With a $15 million stock buyback plan, WeTouch aims to capitalize on its currently low $19 million market capitalization, signaling management’s belief in the stock’s undervaluation and potential for reevaluation.
WeTouch’s core operations serve a diverse range of industries through its touchscreen products, such as GG, GFF, PG, and GF types, with notable demand in the automotive sector. Recently, the company has prioritized geographic expansion, as international sales rose to $9.8 million in the first half of 2024, marking a 26.9% increase from the previous year. This growth underscores potential in overseas markets, particularly in gaming and automotive applications. The company’s decision to construct new facilities in Chengdu by early 2025 is expected to boost production capacity and operational efficiency, further supporting growth.
However, several concerns weigh on the company’s valuation. The lack of a dominant shareholder with more than a 5% stake and the founder’s reduced ownership from 30% in 2020 have raised agency cost concerns and questions over management alignment with shareholders. This issue is exacerbated by the absence of a dividend policy despite substantial cash reserves and limited liquidity in the stock. Management’s low compensation of the CEO and CFO appears misaligned with peer standards, potentially impacting retention and oversight.
Furthermore, WeTouch has faced significant dilution, issuing 10 million shares since January 2023, justified by management as a strategy to pursue a NASDAQ listing and fund a new facility, despite already having ample cash reserves. Discrepancies in reported outstanding shares in early 2024 filings have since been resolved, yet they initially raised concerns over financial transparency. Nevertheless, the upcoming stock repurchase program, new CFO leadership, and expansion efforts could drive a revaluation. Even under conservative assumptions, WeTouch’s stock is estimated to achieve a 100% gain over its current market cap, offering an appealing risk/reward profile amidst market uncertainties.
Wetouch Technology Inc. (WETH) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 1 hedge fund portfolios held WETH at the end of the second quarter which was 0 in the previous quarter. While we acknowledge the risk and potential of WETH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WETH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.