VIPS: Online Shopping in China

08/04/2015 10:00 am EST

Focus: STOCKS

Nicholas Vardy

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

Our latest featured recommendation is a bet on the recovery of China’s markets, through a online Chinese retailer, explains Nicholas Vardy, editor of Bull Market Alert.

Vipshop Holdings Limited (VIPS) began as an online shop offering brand-obsessed Chinese buyers upscale clothing, shoes, accessories, and cosmetics, all at discounted prices.

Selling over 8,700 well known brands, Vipshop acquires goods at a discount, sells them at a low price, and then ships them out in bulk.

Vipshop sells many of its goods at a 50% to 70% discount below their original retail prices. This allows young Chinese professionals to purchase quality brands otherwise beyond their means.

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

And unlike most companies, Vipshop could benefit from a slowing of the Chinese economy, as it is the leading retailer of discounted apparel in the country.

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 100% in its most recent quarter. Earnings per share (EPS) grew at 117% last quarter and are expected to grow at 71% in the current quarter.

Although the stock dropped substantially during the recent market pullback and is down 26% from its highs, VIPS has steadied during the past two days, along with the rest of the Chinese stock market.

Deutsche Bank recently reiterated a Buy rating on VIPS. It expects total second quarter revenue to be RMB 9.0 billion ($1.45 billion), which will exceed company guidance and estimates from Wall Street analysts.

Deutsche Bank has a price target of $32.10 on the stock while Summit Research expects the stock to hit $35. That’s almost 54% above the stock’s current  price. Buy VIPS and place your stop at $17.00.

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