Vipshop Holdings Ltd. (VIPS) is a discount e-commerce retailer operating in China. The company is known for its discounted flash sales of a limited number of branded products. As its main competitors Alibaba Holdings Group Ltd. (BABA) and JD.com, Inc. (JD) are currently under government scrutiny, VIPS has the opportunity to grow significantly as a leading player in the Chinese e-commerce industry.
Following the recent anti-trust regulation draft released by the Chinese government, BABA’s shares declined 15.9% over the past month, while JD gained 2.5%. This compares to VIPS’ 17.7% rise over the same period.
With manufacturing and services sectors in China growing significantly over the past couple of months, strengthening consumer demand should lead to revenue growth for VIPS this holiday season and beyond. The stock has gained 77.4% year-to-date. This impressive performance and potential upside is based on several factors that have helped VIPS earn a “Strong Buy” rating in our proprietary POWR Ratings system.
Here’s how our proprietary POWR Ratings system evaluates VIPS:
Trade Grade: A
VIPS is currently trading above its 50-day and 200-day moving averages of $21.87 and $19.57, respectively, indicating a golden cross uptrend. It gained 52.4% over the past three months, reflecting solid short-term bullishness.
VIPS’ total revenue increased 18.2% year-over-year to RMB23.20 billion in the third quarter ended September 2020. Gross merchandise volume rose 21% from the year-ago volume to RMB38.30 billion, while net income grew 42.1% from the same period last year to RMB1.20 billion. VIPS recorded 43.40 million active customers during the quarter, up 36% from the prior year quarter.
Buy & Hold Grade: A
In terms of proximity to its 52-week high, which is a key factor our Buy & Hold grade considers, VIPS is well positioned. It is currently trading just 3.6% below its 52-week high of $26.07, which it hit on November 27th.
VIPS gained 198.8% over the past three years. This can be attributed to its impressive growth in revenue and earnings over the same period. VIPS’ revenue and EPS increased at CAGRs of 12.1% and 29.2% respectively, over the past three years. Net income rose at a CAGR of 34% over the same period.
The booming Chinese economy over the past couple of years contributed heavily to VIPS growth. China’s strained relations with the United States diverted attention to domestic companies to meet the rising consumer demand in the economy, thereby generating higher sales for discount retailers such as VIPS. Also, as VIPS’ largest competitor BABA started focusing more on its cloud segment, VIPS attracted a larger number of customers through its aggressive pricing policies.
Peer Grade: A
While BILI beat VIPS by gaining 231.9% year-to-date, BIDU and YUMC returned 13.7% and 17.9% respectively, over the same period.
Industry Rank: B
China group is ranked #36 out of 123 StockNews industries. China’s miraculous recovery from the pandemic has made it the only leading economy to report positive GDP growth this year. With even the developed countries still battling recession coupled with a second wave of coronavirus worsening the economic conditions, most Chinese companies are witnessing strong rebound owing to strengthening consumer demand. With China currently ahead of the rest of the world in terms of growth, betting on companies operating primarily in this economy should be profitable.
Overall POWR Rating: A (Strong Buy)
VIPS is rated “Strong Buy” due to its solid short-and-long-term bullishness, impressive financials, and underlying industry strength, as determined by the four components of overall POWR Rating.
Analysts expect VIPS’ price to reach $171.26, indicating a 574.2% growth, as the seasonal demand kicks in this month. This, coupled with a weakening market competition amid a fast recovering economy, makes VIPS a good investment bet now.
VIPS has an average broker rating of 1.38, indicating favorable analyst sentiment. Out of 27 Wall Street Analysts that rated the stock, 16 rated it “Strong Buy.” The consensus EPS estimate of $0.48 for the fourth quarter ending December 2020 indicates a 20% rise year-over-year. VIPS has an impressive earnings surprise history as well, as it beat the street EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $5.30 billion for the current quarter indicates a 26.4% improvement from the prior-year quarter.
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VIPS shares were unchanged in after-hours trading Thursday. Year-to-date, VIPS has gained 76.99%, versus a 15.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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