This Chinese e-commerce company is expected to grow by 21.3% next year.
Vipshop Holdings Limited (VIPS)
From Cabot Global Stocks Explorer
China will soon play host to the biggest shopping day of the year in the world, an event called Singles’ Day, which has occurred every year since 2003, on November 11. Last year, Singles’ Day sales were a record $38.4 billion, and the expectations are that they could hit $45 billion this year.
One of the companies that will surely benefit from China’s upcoming spending binge is Vipshop Holdings. The company was founded in 2008 and is headquartered in Guangzhou, China.
Vipshop doesn’t get the attention of its largest competitors, such as Alibaba (BABA), but it is the sixth largest e-commerce company in China, according to eMarketer. Vipshop also has a bit of a different strategy as an online discount retailer. Through its website, it sells everything from apparel, cosmetics and jewelry to electronics, home appliances and all sorts of gadgets. It’s why I call it the Chinese online version of T.J. Maxx, Ross and Marshall’s all rolled into one.
In the second quarter, the online retailer saw revenue increase to $3.4 billion as its total orders grew 15% from 147.8 million to 170.5 million. In addition, the number of its active customers jumped 17% to 38.8 million. Another good sign is that repeat customers accounted for 90% of total active customers.
Despite these solid numbers, VIPS stock pulled back pretty sharply in part due to management lowering expectations for the balance of 2020. But management has a habit of doing just that, and while its third quarter revenue is expected to be just over $3 billion, its fourth quarter, which includes the aforementioned Singles’ Day splurge, could reach $4.8 billion.
The good news is the steep pullback has provided us with an opportunity to buy shares at a discount. Trading at just under 16 a share, it is far from its 52-week high of 24. In terms of price to sales and price to book value, VIPS looks inexpensive compared to its larger rivals. Its forward price-to-earnings ratio is just a bit over 12.
VIPS could be an excellent near-term trade, with a target price over the next 3-6 months in the 20-25 range. BUY A HALF POSITION.
Carl Delfeld, Cabot Global Stocks Explorer, cabotwealth.com, 978-745-5532, October 1, 2020