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E-commerce giant Vipshop undervalued following recent sell-off?

Written by Larince Zhang

E-commerce is a competitive yet lucrative business, especially in China. According to Statista, the Chinese e-commerce market is estimated to generate revenue around $1,535B this year, much higher than the US, the first runner up at $875B, and Japan, the second runner up at $241B.

Figure 1: Revenue of E-Commerce Worldwide in 2022, by country (in billion USD). Source:Statista

On 16th March, news that the Chinese government signaled support  for local stocks and those listed in the US, as well as a winding down of its regulatory crackdown, boosted most Chinese stocks. Among them, e-commerce giants Pinduoduo Inc and JD.com Inc have surged by 36% and over 20% respectively intraday. Likewise, another e-commerce underdog, Vipshop, has risen nearly 33%. In general, JPMorgan remains optimistic over Chinese tech stocks, considering factors ,such as market correction likely to have finished, the country’s “front-loaded stimulus”, economic reopening, and attractive valuations.

Vipshop is an online discount retailer for more than 1000 brands in China, whose product offerings include clothing and accessories, cosmetics, home products and furniture, and other lifestyle products. It is also the third biggest B2C marketplace in China ,with more than 300m users in the country.

Figure 2: VIPShop Share Price vs Fair Value. Source: Simply Wall.St

Fundamentally, the company is well below the market’s fair value. Its healthy financial position (low debt-to-equity ratio, free cash flow, good P/E and PEG ratio) may serve as another plus point for investors. However, there are  warning signs such as slowdown in active user growth (-7.7% y/y to 49.2 million), declined total orders and profitability, contracting gross and operating margins, as well as declining total net revenue, gross profit and net income, as reported by the company in its latest earnings announcement.

Technical Analysis:

The extensive crackdowns by the Chinese government regulators and the Archegos sent the #Vipshop share price down over 420%, to January 2019 lows. As of its close last Friday, the company’s share price rebounded off its lows to $8.81, up over 53%. The psychological level $10.00 serves as an immediate resistance, which is also the SMA-20. Breaking above this level may bring the next resistance $13.22-$14.85 into focus. The 61.8% FR, or $20.23, is the third resistance level, where it coincides with SMA-100 – an indicator that separates the bullish/bearish zone. On the other hand, $7.00 will be the nearest support, followed by the lows seen in late October 2018 at $4.30.

About the author

Larince Zhang

长达八年的实盘操作与市场分析经验。涉足的金融产品包含外汇、大宗商品、股指、商品期货、指数期货以及股票。大学主修金融学,秉持着学以致用的心态务必把课堂上所学的知识与临场实践经验相结合。 经过多年交易经验的积累与总结,坚信“大道至简”四字箴言。价格的变动即是幕后人为交易买卖所驱使。坚信市场考验的不是技术,而是人心。唯有正确的交易认知、缜密的策略布局与严谨的资金管理,方才是成熟交易的真谛。

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