Vipshop Smashes Expectations Yet Again, But Stock Gets Punished

Aug.14.14 | About: Vipshop Holdings (VIPS)

Summary

Vipshop is known for its solid earnings and revenue growth, and has a history of beating expectations.

Its latest report once again showed impressive growth.

A selloff following the report may provide investors with an entry-point.

Growth investors are always on the lookout for stocks that have a solid history not only of rapidly improving revenue and earnings, but also for consistently beating analyst expectations. The Chinese e-commerce market is red hot at the moment, and one company in particularly is consistently delivering massive growth along with a string of earnings beats over the last few years. Let's take a look at Vipshop's (NYSE:VIPS) results.

Firing on all cylinders

For those who though that Vipshop couldn't top its first-quarter report, think again. For the second quarter, total net revenues were up by 136.1% to $816.7 million compared to last quarter's 125.9% increase and an analyst consensus estimate of $791.55 million. The increase in number of active users was once again formidable, rising 167.9% to 9.3 million, while total orders increased by 138.4% to 26.3 million. Not only is the company growing impressively, this growth seems to be accelerating sequentially.

The company's bottom line performance was even more impressive, with net income up by 192% and EPS of $0.72 easily beating the $0.64 consensus estimate for the tenth consecutive upside earnings surprise. Moreover, the net income margin increased to 3.2% from 2.6% a year ago.

Management was clearly pleased with the company's performance for the quarter, remarking on the increased importance of the mobile channel and the expansion of warehouse capacity in order to better serve its customers. Clearly, the flash sale format is a popular one in China, the website allowing consumers to buy a limited range of branded goods at a steep discount for a limited time only.

Analysts have also been quick to praise Vipshop's business model as well as its results following the report, with a JG Capital analyst stating: "This is the best-positioned company in Chinese flash sales. I don't see any meaningful competitors". Going forward, the company's outlook is positive; Vipshop once again expects triple-digit revenue growth for the coming quarter, guiding above the consensus.

Stock punished?

Strangely enough, the stock is getting punished, down around 6% at the time of writing. This follows a strong performance during the previous trading day, although it is unclear what is causing the selloff, as the results are considerably better than those of other Chinese e-commerce players.

Dangdang (NYSE:DANG), another Chinese e-commerce firm albeit with a different sales model, saw its revenue increase by 31.3%, which is not a bad figure at all, but certainly nowhere near the growth Vipshop is achieving. Meanwhile, the company turned last year's loss into a profit of $4.6 million.

Management was enthusiastic about the results, stating that the Chinese e-commerce industry still has plenty of room to run, although warning of an intensely competitive environment. The company is working on moving beyond being 'just' an online bookstore, and is expanding into product categories such as apparel and maternity items.

Conclusion

There seems to be no end in sight to Vipshop's stellar run of earnings and revenue growth, with its second-quarter report once again delivering triple-digit increases on the top and bottom line. In any case, the company seems to be easily outpacing the industry. However, following the release, the company's stock went through a big selloff, which may provide an entry point for investors who are interested in benefiting from the industry's prospects in general and the company's massive growth in particular.

Disclosure: The author is long VIPS. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.