Flash Sales Boost Vipshop

07/29/2014 10:00 am EST

Focus: STOCKS

Nicholas Vardy

Editor, Bull Market Alert, The Alpha Investor Letter, and The Global Guru

Our latest recommendation is a company that began as an online shop offering brand-obsessed Chinese buyers upscale clothing, shoes, accessories, and cosmetics at discounted prices, notes Nicholas Vardy, editor of Bull Market Alert.

But Vipshop Holdings Limited (VIPS) really hit its stride when it adopted the "flash sales" model.

That’s when a fixed quantity of goods becomes available for sale for a limited period of time, usually at a 50-70% discount below its original retail price.

This model allows young Chinese professionals to purchase quality brands otherwise beyond their reach. “Flash sales” also turned out to be the basis of a remarkably profitable business model.

Vipshop acquires goods at a discount, sells them at a low price, and then ships them out in bulk.

That translates into much higher margins when compared to traditional e-commerce companies, which have to maintain massive inventories in a wide range of items.

No wonder Vipshop has been making money hand over fist since first turning profitable in Q3 of 2012.

The company has enjoyed triple—or quadruple-digit percentage revenue growth every quarter for several years, including a 126% jump to $701.9 million in its most recent quarter.

Earnings per share (EPS) also grew at 533.3% in 2013. Consensus estimates call for EPS to climb another 220% this quarter.

Couple this remarkable growth with consistently improving profit margins over the last few years, and there is good reason to think that the stock has plenty of upside left.

The shares jumped nearly 10% on May 15, following the company’s previous quarterly results. The same could happen when the company announces results on August 13.

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