This Chinese retailer is growing on three fronts, and a recent pullback in shares provides an attractive entry point.
Jumei International (JMEI)
from Cabot China & Emerging Markets Report
Jumei International (JMEI) is a retailer of quality branded beauty products and apparel via its jumei.com website and its mobile platform. Jumei sells in three different modes: curated sales, an online shopping mall and flash sales.
Curated sales are the equivalent of shopping at an exclusive boutique where they know your profile and show you products based on your personal taste and buying history. The online shopping mall is a standard retail site, with lots of clickable choices and information. And flash sales are limited-quantity sales that continue until the inventory of a product is exhausted.
Jumei offers plenty of western brands like Estee Lauder, Lancome, Clinique, L’Oreal, Dior and Shiseido, plus leading Chinese brands.
In the three-and-a-half years since it launched the jumei.com website, the company has grown into the number one online retailer of beauty products, enjoying a 22% share of the market in 2013. Revenue grew 107% in 2013, which is more realistic. Earnings grew to $0.38 in 2013 and are forecast to grow to $0.60 in 2014 and $1.06 in 2015.
Second quarter EPS were 16 cents, well above consensus estimates of 12 cents, and revenue was $154.4 million, a 42% increase and also above the estimated $149.6 million.
An increasing number of Chinese are going online and shopping online, with growth especially strong in the number of potential customers using mobile devices. This is reflected in the 42.9% increase in active customers over the previous year. The company is in excellent financial shape, with cash and cash equivalents of $84 million and short-term investments of $493 million. And Jumei is broadening its product lines, through both an active program of alliance-building with existing manufacturers and development of its own private-label and exclusive products.
JMEI doesn’t have an extensive chart history and volatility is still high, as the stock can be considered still in its post-IPO phase. The reaction to the August 18 earnings report was a little puzzling—JMEI dropped from 39 to 32 in three days, including a pullback on three times average volume on August 19—but the stock snapped back by a couple of points before yesterday’s dip, then bounced off its 50-day moving average this morning and roared higher all day finishing with a nice gain. We were prepared to add the stock to the watch list, but this bounce presents too good an opportunity. We’ll buy a half position in JMEI. BUY A HALF.
Paul Goodwin, Cabot China & Emerging Markets Report, www.cabot.net, 978-745-5532, August 28, 2014