Our first idea is a company that is growing at a triple-digit pace, with two analysts increasing forecasts for this year. Our second recommendation is partial profit-taking.
Buy: Baozun (BZUN)
From: Cabot Emerging Markets Investor
Baozun (BZUN) works for the companies who have brands that they sell (or want to sell) in China. These (mostly Western) brands hire Baozun to introduce them to Chinese consumers, to design, build and maintain their websites, to provide customer service and digital marketing, and to warehouse and deliver their wares. (The company can offer next-day delivery in 95 Chinese cities.)
Baozun has always enjoyed a strategic partnership with Alibaba, and much of its business takes place on Alibaba’s T-Mall or on JD.com. Baozun’s client list has expanded from 95 brand partners at the end of 2015 to 136 at the end of Q1 2017. These brands include Nike, Coach, Converse, Levi’s, Calvin Klein and Burberry in fashion; Subaru, Honda, Mitsubishi, Fiat and Toyota in the automotive industry; Haagen-Dazs, Shiseido, Godiva, Johnson & Johnson and Pepsi in the beauty and food categories; and Microsoft, GoPro, Acer and Belkin in technology.
The company’s recent quarterly report was strong, with revenue of $117 million (up 13% year-over-year) and earnings of seven cents per share (up 75%). The gross merchandise value facilitated by Baozun increased by 61%, with same-store sales growth of 50%. The company also issued Q2 guidance that called for a 24% to 27% increase in revenue.
In the future, Baozun plans to grow in a couple of ways. First, the company wants to go global, building on its brand partnerships outside China. Second, the goal is to emphasize the non-distribution (services) side of the business, which will lower inventory volume and risk.
The stock started to spring higher on May 5, hit 20 on May 10 and ripped above 23 after its May 16 earnings report, a gain that was quickly given back as the overall market tumbled. BZUN remains volatile, but is resisting the downtrend that has pulled many emerging market stocks down significantly. We like the story and the chart, but we also take the market’s recent turbulence seriously. So we will buy just a half position in BZUN, at least until we get a clear signal from the market that all is well. BUY A HALF.
Paul Goodwin, Cabot Emerging Markets Investor, www.cabotwealth.com, 978-745-5532, May 18, 2017