Is VNET Stock A Tax-Loss Play?
MarketBeat.com | Dec 17, 2021 12:36PM ET
Chinese internet hosting company VNET Group (NASDAQ:VNET) has plunged back towards its 2020 pandemic lows, causing tax-loss selling for investors. The China effect is also taking its toll on shares of VNET, as investors dump shares in Chinese internet companies due to the crackdown by the government and pressure to delist off US exchanges.
The tension between the US and China is driving investors out of Chinese stocks. Formerly called 21Vianet, the company changed its name to VNET Group. As one of the three primary data center operators in China, VNET has room to grow.
With tax-loss selling, underperforming stocks tend to get sold off by the end of the year and rebound in the first quarter of the new year. Investors step back to avoid the wash rule requiring at least a 30-day wait period before buying back the shares.
The strategy is to buy into the selling to sell into the January through February rally. Speculators looking for a short-term trading opportunity can watch for opportunistic pullback entries.
h2 Q3 FY 2021 Earnings Release/h2On Nov. 18, VNET released its unaudited fiscal third-quarter 2021 results for the quarter ending September 2021. The company reported net revenues of $242.2 million, up 25.3% year-over-year (YoY). Adjusted cash gross margin was 43.2%, up from 42.2% a year ago. Adjusted EBITDA rose 22.4% to $69.9 million.
VNET CEO Samuel Shen commented,
“We achieved robust financial and operating results in the quarter thanks to the methodical execution of our dual-core growth engine strategy. Leveraging our combined strengths in retail and wholesale IDC services, we successfully capitalized on the growing demand for IT infrastructure across all our business segments to achieve a healthy pace in ramping up our wholesale capacity, grow and diversify our retail client base, and generate growing interest in our cloud business. By maintaining a pinpoint focus on the execution of our dual-core strategy, we are confident in our growth potential as we augment our leadership position in the carrier- and cloud-neutral Internet data center services sector in China.”
VNET CFO Tim Chen also gave his view:
“We delivered a milestone financial performance this quarter with strong top-and bottom-line growth. Despite regulatory uncertainties, both our net revenues and adjusted EBITDA during the third quarter exceeded the high end of our guidance range, increasing by 25.3% and 22.2% year over year, respectively. Our strong growth was derived from our unique mix of wholesale and retail IDC solutions and increasing demand driven by the ongoing digital transformation. As we continue to execute our growth strategies, prudently leverage our healthy balance sheet, and broaden our sector coverage, we will continue to deliver long-term value for our investors going forward.”
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Using the rifle charts on the weekly and daily time frames provides a near-term precision view of the playing field for VNET shares. The weekly rifle charts peaked at the $44.30 Fibonacci (fib) level. Shares proceeded to fall (-75%) from the top to coil off the $7.51 fib.
The weekly rifle chart downtrend has a falling 5-period moving average (MA) at $11.83, followed by the 15-period MA at $16.08. The weekly lower Bollinger Bands (BBs) sit at $7.26.
The daily rifle chart breakdown after triggering the market structure high (MSH) sell signal under $18.23 is starting to smooth out as the 5-period MA stalls at the $8.56 fib. The 15-period MA continues to fall at $10.60. The daily stochastic is attempting to bounce back to the 20-band.
The daily market structure low (MSL) buy triggers above $8.91. Prudent investors can watch for opportunistic pullback levels at the $8.91 fib, $7.51 fib, $6.31 fib, $5.41 fib, and the $4.52 fib level. Upside trajectories range from the $13.74 fib level to the $20.70 fib.
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