China Stock Expected to Surge 50%

The analyst said the stock's recent sell-off was overdone

J.P. Morgan Securities initiated coverage on DouYu International Holdings Ltd (NASDAQ:DOYU) with an "overweight" rating and a $13 price target -- a 50% premium to last night's close at $8.64. Analyst Daniel Chen waxed optimistic over the Chinese gaming platform's position to capitalize on China's esports boom. Additionally, Chen said DOYU stock's sell-off after its mid-July Nasdaq debut is overdone, and traders should "buy the dip on expectations for new game launches" into early 2020.

DOYU shares initially ticked higher out of the gate, but were last seen down 0.7% at $8.58. The stock opened for trading at $11.02 on July 17, below the initial public offering (IPO) price of $11.50 per American depositary share (ADS). It's been a steady slide since then, with the stock's newly formed 20-day moving average emerging as resistance.

The analysts already covering DOYU stock already share J.P. Morgan Securities' bullish outlook, with all three maintaining a "buy" or better rating. Plus, the average 12-month price target of $12.63 is a 45.8% premium to current trading levels.

Short-term options traders, on the other hand, have struck a decidedly bearish tone toward the Chinese stock. DOYU's Schaeffer's put/call open interest ratio (SOIR) is perched at 1.14, signaling a put-skew in the front three-months' series of options.

The November 7.50 put is home to peak open interest, and data from Trade-Alert points to buy-to-open activity here. By purchasing these puts, speculators are betting on DOYU breaching $7.50 by November options expiration. The lowest the shares have ever traded was $7.77 on Aug. 6.