The equity markets have taken investors on a roller-coaster ride in the last 12-months. As the pandemic wreaked havoc on the personal and professional lives of the world population, several industries experienced significant losses to revenue as countries around the world announced economic lockdowns.
However, there were some industries, such as e-commerce, that were immune to COVID-19 and in fact, thrived amid the pandemic. As businesses were shut down, people had no option but to shop online. And the transition away from brick-and-mortar stores towards e-commerce continues to accelerate.
While e-commerce companies like Amazon (AMZN), Etsy (ETSY), and Shopify (SHOP) have gained momentum, so too have their Chinese counterparts. Here, we take a look at Vipshop Holdings (VIPS), which is one of the top e-commerce stocks in China.
Vipshop stock has gained 147% in the past year
VIPS stock is currently trading at $33.72 per share, which means it has gained over 147% in the past year, easily outpacing the broader markets. The company is one of the largest discount retailers for brands in China. It offers popular branded products at a significant discount.
In the third quarter of 2020, VIPS sales were up 18.2% year-over-year at $3.4 billion. Its gross merchandise volume soared 21%, gross profit rose 15.3% while net income was up by a stellar 42.1% year over year in the September quarter.
The number of active customers on VIPS’ platform rose 36% year over year to 43.4 million, up from 32 million in the prior-year period. Comparatively, total orders on its platform soared 35% to 172.8 million in Q3 of 2020, compared with 127.6 million in the prior-year period. So it’s no surprise that our POWR Ratings system rates VIPS a B, which equates to Buy.
According to analyst data from Yahoo Finance, VIPS is forecast to increase sales by 17.6% to $15.62 billion in 2020 and by 17.8% to $18.4 billion in 2021. Comparatively, its earnings are forecast to grow by 26.9% in 2020 and 23.5% in 2021.
This impressive performance and the potential upside are based on multiple factors that have helped VIPS earn an Overall B rating in our proprietary POWR Rating system.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree. In total, we rate RUN on eight different levels. Beyond what I have stated above, VIPS is also given grades for Value, Momentum, Stability, Sentiment, and Quality. Get all of VIPS’ ratings here.
Valuation and expanding TAM
VIPS is significantly undervalued compared to e-commerce peers such as Shopify, Amazon, and Etsy. Vipshop stock has a forward price to 2021 earnings multiple of just 20.7x and a price to sales multiple of 1.24x.
Comparatively, the price to sales ratios for Amazon, Etsy, and Shopify are significantly higher at 3.5x, 16x, and 46x respectively.
VIPS has confirmed that it will focus on buyer growth over margin expansion in the near-term. Investors should not be too perturbed as this growth strategy will help Vipshop gain a loyal base of repeat buyers which will then drive top-line growth over the long-term.
VIPS is already the sixth largest e-commerce company in China and part of a rapidly expanding market. According to a report from Statista, e-commerce sales in China are forecast to grow from $1.26 trillion in 2021 to $1.63 trillion in 2025, indicating an annual growth rate of almost 7% in this period.
The verdict for Vipshop
China is the world’s most populous country with a growing middle class. The country is ahead of the COVID-19 curve and consumer spending should normalize and may even gain pace in 2021. These factors should spur renewed interest in VIPS. VIPS’ undervaluation, rising revenue, expanding profit margins and a growing addressable market make it a top pick for long-term investors.
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VIPS shares were trading at $33.89 per share on Wednesday afternoon, up $0.09 (+0.27%). Year-to-date, VIPS has gained 20.56%, versus a 4.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...
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