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This Undervalued Chinese Tech Stock has an A+ Trade Setup

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Vipshop (VIPS - Free Report)  is a leading online discount retailer based in China. Established in 2008, Vipshop has grown into a prominent e-commerce platform that offers high-quality branded products at discounted prices to a large and loyal customer base.

Through its innovative flash sales model, Vipshop collaborates directly with brand partners to provide a wide range of fashion, beauty, home, and lifestyle products to consumers. VIPS’s success lies in its ability to cater to the evolving consumer preferences in China's fast-growing e-commerce market.

VIPS stock has put up a strong, albeit volatile performance over the last decade. However, the last two years were particularly challenging, as the extended Chinese lockdown slammed sales growth and the stock experienced a brutal correction.

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That correction has created an exceptional opportunity for savvy investors though, and the stock now has a number of bullish catalysts. With improving earnings estimates, a reasonable valuation, and a convincing technical setup, Vipshop could be on the verge of a big bull run.

Additionally, VIPS earns an “A” across all Zacks Style Scores, further improving the odds of near-term strength.

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Earnings Estimates

Earnings estimates for Vipshop have moved sharply higher since the beginning of 2023. Over the last two months current quarter earnings have been revised higher by 31.4%, and FY23 earnings have been upgraded by 17.6%.

Additionally, current quarter earnings expected to grow 24.3% YoY, while FY23 earnings are projected to climb 25.2% YoY. Current quarter sales are projected to grow 9.6%, and FY23 sales expected to increase 5%.

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Technical Setup

VIPS currently has a very convincing technical trade setup. After breaking out from an 18-month base, VIPS has been building an incredibly tight consolidation and continuation pattern.

If VIPS stock breaks out above $16, it should experience a strong rally towards the $20 level. Alternatively, if the price can’t hold above $14 the trade setup would be invalidated.

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Alibaba

When it comes to Chinese e-commerce, it’s no surprise that many investors immediately turn their attention to the Chinese tech giant, Alibaba (BABA - Free Report) . Like Vipshop, Alibaba was not able to escape the nasty downturn in the Chinese market and is still -75% from its all-time higher in 2021.

However, the setup for BABA isn’t quite as convincing as VIPS. Alibaba currently has a Zacks Rank #3 (Hold), indicating mixed earnings revisions, and its chart is still in a clear technical downtrend.

Additionally, Vipshop trades at a lower earnings multiple than Alibaba. VIPS is currently trading at a one-year forward earnings multiple of 9.4x, which is below BABA’s 12.5x, and well below its 10-year median of 18.3x. Additionally, when compared to other e-commerce platforms, VIPS looks even more compelling.

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MercadoLibre

MercadoLibre (MELI - Free Report)  is a leading e-commerce platform in Latin America, often referred to as the "eBay of Latin America." Connecting millions of buyers and sellers across the region, MercadoLibre offers a comprehensive marketplace for a wide range of products and services. With integrated solutions like Mercado Pago for digital payments and Mercado Envios for logistics, the company has established itself as a key player in Latin America's e-commerce industry.

Compared to VIPS, MELI’s valuation is sky-high. MercadoLibre is trading at a one-year forward earnings multiple of 76.2x, way above VIPS 9.4x, and just below its 10-year median of 79.3x.

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And while MELI has this incredibly high valuation, it does have some bullish catalysts. With upward trending earnings revisions, MELI currently boasts a Zacks Rank #1 (Strong Buy), and has a technical setup very similar to VIPS.

This cup and handle pattern looks very similar to that of VIPS. If MELI stock can trade above $1330, it could see a significant rally. However, below $1210, the technical setup is invalidated.

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Bottom Line

Vipshop has a number of things going for it. With a compelling momentum chart pattern, below historical and industry average valuation, and upward trending earnings revisions it is certainly worth considering for a trade. Additionally, investors comfortable buying high multiple growth stocks can consider MercadoLibre, as it too has an interesting trade setup.


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Vipshop Holdings Limited (VIPS) - free report >>

MercadoLibre, Inc. (MELI) - free report >>

Alibaba Group Holding Limited (BABA) - free report >>

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