With a P/E of just 8, this social media newcomer is a cheap stock pick!

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.

Following a considerable fall in the share price over the past year, I’m seeing Yalla (NYSE:YALA) as a cheap stock pick. Growth and tech stocks are certainly not in vogue right now, but many still trade with considerably elevated multiples. However, despite being a relative newcomer (founded in 2016), Yalla is profitable and looks cheap compared to its established peers.

It’s a UAE-based tech platform that aims to become largest destination for online social networking and entertainment activities in the Middle East and North Africa. It generates revenue from chatting and gaming services.

Here’s why I think Yalla would be a good addition to my portfolio.

Valuation

It has a price-to-earnings ratio (P/E) — a metric for valuing a company linked to its current share price relative to its earnings per share — of just 8.2, based on its performance over the past 12 months. It has a forward P/E ratio of 7.8 on projected earnings for the year. That’s pretty good for any stock, but it appears particularly cheap given its growth prospects and the valuations of its peers.

Here’s how Yalla stacks up against established social media and tech stocks.

Stock P/E ratio
Yalla 8.2
Twitter 131
Meta 14.5
Alphabet Inc 20

As the data suggest, Yalla is cheap compared to its established peers. In fact, it’s many times cheaper than Twitter.

It also looks cheap when we compared these companies by their price-to-sales (P/S) ratio. This is calculated by taking the stock’s market capitalisation and dividing it by the company’s total sales or revenue over the past year.

Stock P/S ratio
Yalla 2
Twitter 5.6
Meta 4.5
Alphabet Inc 5.5

Growth

Yalla’s year-on-year user growth is impressive. In the recently released Q1 report, the company highlighted that average monthly active users (MAUs) reached 29.2m during the period, representing a 55.3% increase year-on-year. There was also a 61% increase in the number of paying users versus the first three months of last year. There were 9.4m paying users in Q1 2022.

Revenue also grew year-on-year from $67.6m to $72.3m. The Q1 figure is actually the highest quarterly revenue achieved by the firm. However, the growth rate has slowed slightly since 2020 when revenue grew substantially. Although the Q1 performance will put investors at ease after a slight decline in revenue during Q4 2021.

Net revenue actually fell to $17.7m from $19.8m in Q1 2021 with Yalla management talking about investing more in R&D to enhance its offerings. Among other developments, it has launched the region’s first-ever social metaverse app, WAHA. 

Risks

Yalla’s management has acknowledged that 2022 is “shaping up to be a year full of challenges“. The group said it would focus on enhancing its offering during the period. One challenge revolves around the increasing cost of borrowing in the current environment. Higher interest rates increase the cost of growth. It will also have to be wary of competition and established players enhancing their offering in the region.

Should I buy?

I think Yalla would be a good addition to my portfolio. The stock looks cheap compared to its competitors and appears to be on a promising growth curve.

The post With a P/E of just 8, this social media newcomer is a cheap stock pick! appeared first on The Motley Fool UK.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

More reading

  • The Centrica share price is up 65%. Here’s why I sold
  • As the Howden Joinery share price falls, I’d buy and hold
  • The tumbling Persimmon share price means an 11.3% yield! Should I buy?
  • As stock markets crash, I’d buy these 4 FTSE 100 fallers!
  • A 7.6% dividend yield! Is the Aviva share price a bargain not to be missed?

James Fox has no position in any of the companies mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), and Twitter. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.