Vipshop — Profitable undervalued Chinese retailer at minimums
Date initiated: June 22, 2021
Vipshop is an online off-price seller of remnants of branded and other clothing in China, showing a good growth rate of financial indicators and undervalued by multiples relative to the industry.
1. In recent quarters, the company has shown a good rate of revenue growth with acceleration:
Revenue growth is organic: the number of new customers is growing, and old customers are making repeat orders:
Also, there is an increase in traffic to the website of the online store:
This allows us to expect the continuation of a good rate of revenue growth in subsequent periods.
2. Growth prospects: the growth of the e-commerce market in China, the growth of the company’s market share in its segment.
a) According to the company’s presentation, market growth of almost 3.5 times is required for the industry to reach a market share compared to the United States:
b) In addition, the company does not have competitors with a similar number of suppliers and customers, as well as with a similar business model:
That gives good prospects for further growth.
3. The company has been showing consistent economic improvement and net profit growth in recent quarters:
As a percentage of revenue, packaging, and shipping costs are reduced:
Marketing, general and administrative expenses are also have been reduced:
This, in turn, leads to an increase in net profit and net profit margin:
4. Shareholders compensation: the company has been generating a lot of cash in recent quarters:
LTM’s cash flow return is 13.8%, which is quite good for a company with similar prospects and growth rates.
Also, the company has allocated $ 500 billion for buyback (5% of the capitalization), which shows both that the current undervaluation is seen in the company itself, and the responsible attitude of management to value creation.
5. Undervaluation: the company is undervalued both in terms of the EV/EBITDA LTM multiple's historical value and looks cheaper than similar companies in the industry.
The company looks undervalued by the EV/LTM EBITDA multiple relative to the value at 75 percentile:
In comparison with the industry, the company also looks interesting: with the strongest growth in financials, the company is quite cheaper than its analogs:
6. Locally good moment to buy: despite the growth of financials and prospects for further growth, the company’s shares are at local lows:
We assume that the market sold it along with other “growth companies”, following the forced sales of the Archegeos fund and did not buy it off, “by inertia”. Risks in the company are not visible even for a typical “tech”: Vipshop has a negative beta to treasuries and a low alpha to the S&P and Nasdaq, about 1.
In view of the above said, the company has been added to the Trending Ideas portfolio and we give it a “buy” recommendation.
Best,
Enhanced Investment Team
https://eninvs.com / team@eninvs.com
