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Bull of the Day: Dangdang (DANG)

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E-Commerce China Dangdang (DANG) is a $1 billion Chinese online retailer offering various consumer products through its website, including books and entertainment, beauty and personal care products, home and lifestyle items, and baby, children and maternity products.

Headquartered in Beijing, the company is best known as the country's largest online seller of books in both Chinese and foreign languages. If Alibaba is considered the Amazon (AMZN - Free Report) and eBay (EBAY - Free Report) of China (Alibaba outpaced their combined transaction volume in 2013 by over 30%), DANG might be the early Amazon of the late 1990s.

In late February, DANG surprised investors and delivered its first profitable quarter since 1Q11, earlier than the market had expected. The company made solid progress in 4Q, especially in inventory management and operation efficiencies. The number of active/new customers and orders all reached record highs, and mobile now contributed ~13% of total orders in 4Q.

Analysts at Oppenheimer & Co. said this after the company's quarterly report...

"The healthy product mix shift to margin-rich categories and continuous scalability & efficiency enhancement drove margins up, and we expect this upward trend to continue in 2014 and beyond. We are also appreciative of DANG’s strategic partnership with rivals, including Alibaba's Tmall and No. 1 Shop, which strengthens its sales network. We increase our PT to $15 from $11, based on 0.7x 2015 EV/sales."

The analysts also noted the strong 25% revenue growth and 1Q14 revenue guidance pointing to 30% year-over-year growth, the fastest pace in five quarters, including benefits from VAT (value-added tax) exemption in books.

Here's how the earnings estimate picture looks with seven Wall Street firms contributing their projections, including Macquarie analysts who raised their price target to $16.50 from $12.50 after the quarter...

Alibaba IPO On Deck

There is much skepticism about Chinese companies because verifying accounting numbers and practices is such a challenge for US investors. But the reception on Wall Street from investment banks and analysts has obviously been kind to the majority of NYSE-listed companies.

And nowhere will this be tested more than in the upcoming IPO of Alibaba which reported Q4 revenues that vaulted 66% year-over-year to $3.06 billion, while net income more than doubled to $1.35 billion. The company is slated to raise about $15 billion in a 10% offering that would logically value the company at $150 billion.

If Wall Street makes the Alibaba IPO a success, it will be a big validation for lots of Chinese companies. And for DANG investors specifically, it could be a real boost. A cash-rich Alibaba may look to expand its e-commerce empire with further partnerships and acquisitions.

Chinese Consumer as an Emerging Force

My last two Bulls of the Day were also Chinese consumer-focused companies, VIPshop (VIPS - Free Report) and BitAuto (BITA - Free Report) . I don't pretend to be an expert on the Chinese economy or these companies. I analyze their business growth because I am deeply curious about the Chinese economy and its giant, emerging middle class.

And studying the investable trends of the world's second largest economy, that is now making a major transition from production for exports to sustainable internal demand, will pay off greatly I believe. I'll give the last word to the analysts from Oppenheimer again...

"Secular tailwinds, such as increasing Internet penetration in China, rising domestic consumption, mobile penetration and growing confidence/trust in China's online payment systems, provide further momentum for DANG's B2C (business-to-consumer) growth. While competition is rising rapidly, DANG continues to hold a solid position to benefit from China's high-growth B2C sector."

Disclosure: I own BitAuto (BITA - Free Report) shares for the Zacks Follow The Money portfolio.

Kevin Cook is a Senior Stock Strategist for Zacks where he runs the Follow The Money portfolio.

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