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September 01, 2020 1:29pm
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1 China Stock to Buy When Others Are Fearful

China’s strict COVID policy has impacted the country’s production recently. However, with the economy opening up, analysts expect the country to be back on its growth path soon. Given this backdrop, the fundamentally strong online retailer Vipshop Holdings (VIPS) could be a solid buy at the current price level. Read on…

According to data released by the National Bureau of Statistics (NBS), Chinese industrial profits fell 3.6% in January-November from a year earlier to $1.11 trillion due to restricted factory activity and supply chain disruptions. The country’s strict COVID policy has impacted production.

However, analysts predict a robust recovery next year. JP Morgan analysts expect China's reopening to have a shorter period of transitional pain in the first quarter of 2023, followed by recovery from the second quarter.

Guangzhou, China-based Vipshop Holdings Limited (VIPS) is expected to benefit significantly from the economy’s recovery. The company offers apparel, skincare and cosmetic products, and shoes and bags. The company operates through its three broad segments:, Shan Shan Outlets, and Others.

The stock has gained 59.3% over the past year and 60.5% year-to-date to close its last trading session at $13.48. It has gained 39.5% over the past month. It is trading above its 50-day moving average of $9.89 and 200-day moving average of $9.41, indicating an uptrend.

Here are the factors that could affect VIPS’ performance in the upcoming months:

Solid Bottom Line

For the fiscal third quarter that ended September 2022, VIPS’ non-GAAP income from operations increased 47.6% year-over-year to $219.20 million. Non-GAAP net income attributable to Vipshop's shareholders rose 55% from the prior-year quarter to $224.17 million. Non-GAAP net income per ADS improved 70.7% from the prior-year period to $0.36.

Discounted Valuation

In terms of its forward EV/Sales, VIPS is trading at 0.42x, 61.8% lower than the industry average of 1.11x. The stock’s forward EV/EBIT multiple of 7.79 is 37.7% lower than the industry average of 12.51. In terms of forward Price/Book, it is trading at 1.54x, 38.9% lower than the industry average of 2.52x.

Analysts Expect Bottom-Line Improvement

The consensus EPS estimates of $0.47 for the current quarter (ending December 2022) and $0.34 for the next quarter (ending March 2023) indicate 14.6% and 9.7% year-over-year improvements, respectively.

Street EPS estimate for the current year (fiscal 2022) of $1.47 reflects a rise of 22.5% from the prior year. Its EPS is estimated to increase 1.5% per annum over the next five years.

POWR Ratings Reflect Promising Prospects

VIPS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has a Value grade of B, in sync with its lower-than-industry valuation multiples. VIPS also has a B grade for Sentiment, consistent with its expected bottom-line improvement.

In the 43-stock China group, it is ranked #4.

Click here to see the additional POWR Ratings for VIPS (Growth, Momentum, Stability, and Quality).

View all the top stocks in the China group here.

Bottom Line

China’s reopening should put the country back on its robust growth path after the transitional period finishes. VIPS has substantially grown its bottom line in the last reported quarter. Given the stock’s uptrend, it might now be a solid addition to one’s portfolio.

How Does Vipshop Holdings Limited (VIPS) Stack up Against Its Peers?

While VIPS has an overall POWR Rating of B, one might consider looking at its industry peers, Tarena International, Inc. (TEDU) and China Automotive Systems, Inc. (CAAS), which have an overall A (Strong Buy) rating.

VIPS shares rose $0.12 (+0.89%) in premarket trading Tuesday. Year-to-date, VIPS has gained 60.48%, versus a -18.07% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.


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