This $7 Stock's Massive Breakout Could Result in a 27% Rally

There is no question that China has a bright economic future. China remains the fastest growing economy on Earth despite its recent slowdown. 

Remember, just like the stock market, economies never travel at the same velocity in a straight line higher. There are always aggressive periods of growth and slow periods. Long-term investors can use the negativity surrounding the weaker-than-expected economic numbers to find bargains in this burgeoning market.

One of my favorite sectors to profit from the Chinese economic growth story is telecommunications, specifically the mobile phone market. A recent study published by Business Insider revealed that smartphones are the fastest growing segment and will soon overtake feature phones in the nation.  

The Chinese smartphone boom has helped a variety of companies prosper. One of my current favorites is Sky-mobi Limited (NASDAQ: MOBI). The company operates as a mobile application store that provides a platform to purchase smartphone applications, games, music, books and other media. It also provides a mobile social media network named Maopao Community. MOBI is well imbedded in the space and has contracts with 106 smartphone handset companies and 1,170 feature phone makers.

Boasting a market cap of around $200 million and over 110 million users on the Maopao smartphone platform, MOBI is a major player in the Chinese mobile market. It is currently adding over 380,000 new users every day.

The company recently posted fiscal third-quarter results for the period ending Dec. 31, which showed a decrease in total revenue but a 65.8% revenue increase from the smartphone segment quarter over quarter. Smartphone revenue accounted for over 56% of total revenue in the quarter. 

The company turned a profit of $0.8 million in fiscal Q3, a substantial improvement over the prior quarter's loss.  

CEO Michael Tao Song said the stronger-than-expected growth in the smartphone business helped to drive the quarter's financial and operational turnaround, which saw over 763 million user visits and over 128 million downloads.  

He said, "This dramatic shift has occurred within only six months since we began the monetization of our smartphone business... With this strong performance and growth momentum, we are confident that our strategies are working and our capabilities are strengthening as we aim to further monetize our Maopao smartphone platform."

Investors reacted very positively to the third quarter's results, sending shares soaring over 30% this week to a new high above $7, and I think this breakout momentum should continue.

Recommended Trade Setup:

-- Buy MOBI at the market price
-- Set stop-loss at $5.26
-- Set initial price target at $9.14 for a potential 27% gain in 90 days

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