The Chinese market has been on fire over the last year or so — first doubling between June 2014 and June 2015, as measured by the Shanghai Composite Index, then burning in a spiral back to earth, down some 30% in a month.
Still, there have been some sizable gains made along the way. Think Alibaba (BABA), which made its debut last September and climbed 30% in just its first two months of U.S. trading. JD.com (JD) is another example, and it’s one I talked about in a previous Smart Talk article.
The one thing these two major Chinese companies have in common is that they’re both online marketplaces — basically the equivalent of Amazon (AMZN) here in the U.S. And these marketplaces are absolutely huge right now.
That’s why I want to talk about Dangdang (DANG) today.
Just like BABA and JD, Dangdang is a leading business-to-consumer e-commerce company in China that sells everything from clothing, footwear and handbags to electronics, household appliances and beauty supplies. In fact, it’s the largest book retailer in China in terms of both revenue and selection. DANG sells its merchandise through its website as well as a mobile app.
Management’s execution hasn’t been fantastic recently, as Dangdang earnings missed the Street’s view in two of the last three quarters and saw a decline in gross margins, but there have been a few things that caught my eye.
- Gross merchandise has gone up dramatically — it was up 49% in the first quarter.
- DANG has approximately 10.2 million active users, 4 million of which were acquired last quarter.
- Mobile orders, which are what the online marketplace game is all about right now, account for 41% of total volume.
DANG stock traded in a relatively steady range through the first six months of the year, climbing nicely in June to a near-term high of $11.50 on June 17. However, as you can see in the chart below, the recent volatility in China has taken a serious toll on Dangdang, and it’s down just less than 30% year-to-date.
That being said, I view this as an opportunity if you’re willing to accept the higher-than-average risk.
This is not a stock for everybody, but I believe DANG will be a name that breaks out when these Chinese stocks make one more leg up to the upside. I do expect China to rebound — while remaining volatile for some time — and believe that growth in the Chinese Internet will be robust enough for all players involved.
DANG is certainly not for the faint of heart, but this stock could make you a lot of money in a fairly short amount of time. At this point, just a rebound to its March low of $7.49 would be a solid 15% climb.
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