by Tom Taulli | March 4, 2014 2:30 pm
Vipshop (VIPS), the Chinese-based ecommerce operator, went public about two years ago. The deal got off to a shaky stark, with the stock down 15% on its first day to $5.50. But since then, things have gotten much better. Consider that in today’s trading, VIPS stock is up 30%, above $160! The market cap is now at about $9.4 billion.
The latest move in VIPS stock comes on the heels of the company’s fourth-quarter earnings report. And yes, the performance was off the charts. In the quarter, revenues soared by 117% to $651 million, and earnings spiked from 16 cents per share to 49 cents per share.
And the momentum is expected to continue. Q1 revenues are expected to range from $640 million to $650 million — up 106% to 109%. As a result, the company is investing aggressively in its product offerings, warehousing and logistics. At the same time, there is a big push on mobile.
Keep in mind that Vipshop must deal with some tough competition, such as Dangdang (DANG), Alibaba, Tencent (TCEHY) and JD.com. In fact, JD.com is expected to go public within the next few weeks. Given the performance of VIPS stock — as well as other Chinese online operators — it is likely to be a red hot deal. Of course, Alibaba is also expected to go public eventually, and the market value could be in excess of $150 billion.
For the most part, Vipshop’s focus is on providing deep discounts on branded products, often by using a “flash” sales model. The idea is to create a thrilling environment, which helps to encourage purchases. No doubt, it is resonating in China. In Q4, Vipshop saw a 119.5% increase in active customers to 5.7 million.
Despite all this, the valuation of VIPS stock is certainly at nose-bleed levels, with the forward price-to-earnings ratio is 50X. Besides, if you look at the stock chart, the move has been parabolic. When this happens, there could be a severe pullback if a company has even a slight deceleration.
There is also the problem of consumer fickleness. After all, the U.S. market has seen flagging interest in flash sales. So might the same ultimately happen in China? It’s definitely a risk worth considering.
But so far, VIPS stock will probably have lots of momentum, at least in the short-run. And a successful IPO from JD.com will probably help, as would an Alibaba offering. Thus, for the time being, expect fast-money traders to continue to play with VIPS stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
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