Stocks of an e-commerce company based in China. Vipshop ( VIPS -17.55% ) The stocks experienced a steep decline during trading on Tuesday, dropping by 17.2% as of 3:03 p.m. Eastern Time.
The company announced its earnings earlier today. Although the second-quarter results exceeded the expected numbers, which were modest to begin with, the third-quarter forecast may have caught investors off guard due to its perceived weakness.
It appears that the Chinese shopper is still feeling pessimistic. However, do you think Vipshop stocks are priced low enough to be worth purchasing at this time? It might be unexpected.
Leading towards a decrease
During the second quarter, Vipshop experienced a small decrease in revenue, dropping from 27.9 billion renminbi in the same period last year to 26.9 billion renminbi ($3.7 billion), marking a 3.6% decline. However, this was better than the expected revenue of $3.11 billion. The earnings per share were $0.48, which was approximately 7% lower than before but exceeded the estimated $0.36 per share.
Management emphasized the successful cost reduction efforts of the company, which have led to higher gross and operating margins despite challenging market conditions, along with sustained profitability.
The third-quarter forecast was disappointing, with management expecting revenue to be between 20.5 billion renminbi and 21.6 billion renminbi, reflecting a decrease of 5% to 10% compared to the same period last year. Profitability guidance was not provided by the company.
Investors are concerned about a declining revenue and the lack of margin guidance. Management stated that the lower guidance is due to overall market conditions, indicating that the Chinese consumer is still a factor. stuck in a period of reduced spending .
Should you buy, sell, or hold Vipshop?
Vipshop’s stock has decreased by approximately 35% so far this year. Despite the declining value, for investors who are interested in Chinese stocks, Vipshop’s shares appear to be very inexpensive at the moment.
Despite the challenges faced this year, the company managed to earn $590 million in the first half of 2024, resulting in a projected annual earnings of $1.18 billion. This performance is notable when compared to Vipshop’s market capitalization of $6.3 billion. Additionally, Vipshop holds a significant cash reserve of approximately $3 billion, enhancing its financial position. Enterprise value (EV) is a financial metric used to represent the total value of a company, taking into consideration its market capitalization, debt, cash, and other factors. with only $3.3 billion.
Vipshop’s EV-to-earnings ratio is very low at 3, indicating that the company is undervalued. Additionally, the management is taking the appropriate actions. repurchasing In the last quarter, the company bought stocks amounting to $200 million and also approved a new repurchase program worth $1 billion.
So for investors who seek out undervalued assets and companies. If you are open to the idea of investing in China and are comfortable with the associated risks, you might consider examining Vipshop after its drop in stock price following its earnings report.
