Why Xunlei Stock Jumped 30.3% in February

What happened

Xunlei (NASDAQ: XNET) stock gained 30.3%% in February, according to data from S&P Global Market Intelligence . Shares appear to have regained ground thanks to a return of bullish sentiment to the market after huge losses in 2018, but investors who are tempted by that momentum may want to hold off.

Continue Reading Below

The stock lost roughly 78% of its value in 2018, and while shares are up roughly 23.5% year to date, it's not clear that the gains reflect improving prospects. The company published fourth-quarter results in the first week of March, and it appears many of the issues that made the stock one to avoid last year still remain.

So what

Xunlei stock rose to incredible heights late in 2017 on excitement surrounding the company's cryptocurrency and related cloud computing platform, but that venture was de-emphasized over issues with its rollout and pressure from Chinese regulatory agencies.

A cloud services company trading at roughly 1.2 times trailing sales might conjure investor hopes of having found an overlooked or otherwise beaten-down value play, but this stock still looks like a trap. Without much visibility into the product and project pipelines, it's difficult to value the company, and the glimpses that retail investors do have into the business' future are not particularly encouraging.

Now what

Xunlei has given up some of its February gains in March, with shares down roughly 6.9% in the month's trading so far.

The company reported fourth-quarter revenue of $42.3 million, down 49% year over year and 6.6% sequentially. Xunlei has previously pointed to its cloud services segment as a potential growth driver after it pivoted away from cryptocurrency, but that doesn't seem to be happening so far -- with sales for the category down 8.5% sequentially. The long-term trajectory remains unappealing, and investors looking for bargains in the cloud services space are probably better off looking elsewhere.

10 stocks we like better than XunleiWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Xunlei wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of March 1, 2019

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.