Vipshop Holdings Ltd – ADR (NYSE:VIPS) is trying to make a comeback. The stock fell to a multiyear low in October and had struggled to hold on to any short-term gains while many of its competitors traded at or near historic highs.
But it looks like the relative weakness could be coming to an end, as shares of the Chinese e-commerce company have doubled in just a couple of months. They’re up 100% from their Oct. 30 low and already 36% in the New Year alone.
A New Power Alliance for VIPS Stock
The big turnaround started in mid-December when VIPS announced that Tencent Holdings Ltd (OTCMKTS:TCEHY), one of the world’s largest e-gaming companies, was leading an $863 million investment into the company with JD.com Inc(ADR) (NASDAQ:JD).
TCEHY invested $604 million for a 7% stake in VIPS, and JD put in another $259 million to increase its own stake from 2.5% to 5.5%. This news alone sent the shares up 39% in a day.
Last week saw even more strength, as the stock gapped 10.5% higher to close at its best price since 2016 on the back of an upgrade and increased price target by an analyst at Bernstein. The firm said that the investments by TCEHY and JD are catalysts that will help VIPS’ business rebound.
Those of you who subscribe to my NexGen newsletters know that TCEHY is one of my favorite Chinese companies right now, and JD is also near the top of the list. I agree that their investments in VIPS can only mean good things, and the alliance will also help fight off any competition from Alibaba Group Holding Ltd (BABA) — which is yet another of my Chinese e-commerce favorites.
Still, I’m not ready to jump on the VIPS bandwagon just yet. The stock has rallied so quickly that I am not comfortable chasing it at current prices, so patience will be key in building any sort of position.
The most I would pay for this stock right now is $14.50, which is the bottom of the gap that was formed this week. Realistically, it could pull back even further toward support at $12.50 if the overall tech sector weakens after its recent rally.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.