We came across a bullish thesis on KE Holdings Inc. (NYSE:BEKE) on ValueInvestorsClub by Weighing Machine Capital. In this article, we will summarize the bulls’ thesis on BEKE. The company’s shares were trading at $20.25 when this thesis was published, vs. the closing price of $24.26 on Mar 07.

BEKE operates an integrated online and offline platform for housing transactions and services in China. It operates through four segments: Existing Home Transaction Services, New Home Transaction Services, Home Renovation and Furnishing, and Emerging and Other Services. It covers over 100 cities in China and operates 45,000 stores with monthly active users (MAU) close to 50 million.

BEKE offers end to end housing solutions with a vast network of agents who have access to AI tools which can be leveraged to understand the customer dynamics. It has a competitive advantage over its rival Anjuke due to its diversified offerings that include financing, home renovation and community development. An additional offline source is also key to expanding BEKE’s business since the online platform is highly competitive with Anjuke’s 58.com capturing higher traffic.

 The industry is also favorable for big players like BEKE who have leveraged on digital transformation to access more customers. The online penetration is expected to touch 50% in 2030, up from 15% in 2024. The policies have also been favorable as interest rates, tax burden and percentage of down payment have been lowered. Local governments have been empowered to cancel restrictive measures related to home purchases and urbanization of 1 million houses is on the cards. These measures will give BEKE access to more inventory and increase the volume of transactions done.

BEKE trades below 20x its earnings multiple making it an undervalued stock offering sufficient growth prospects and competitive advantage. Its Enterprise to Gross Profit ratio is 5.5x which is much lower than its peers. The profitability is also improving and this justifies a multiple of 25x. Based on a higher multiple, the fair value of the stock should be $31-32, offering a potential gain of 33% from its current price.

While we acknowledge the potential of BEKE 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 time frame. If you are looking for an AI stock that is more promising than BEKE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.