Vipshop Holdings Ltd Stock Price Correction Unjustified

Vipshop Holdings Ltd Stock Price Correction Unjustified
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The stock price of Vipshop Holdings Ltd – ADR (NYSE:VIPS), a holding company and online discount retailer for various brands based in China declined around 6% on Friday due to several factors such as the filing of Sequoia to distribute a million of American Depositary Shares (ADS), and concerns regarding potential management sell-down from dual-class classification proposal at the upcoming AGM conference on September 15.

Credit Suisse analysts Evan Zhou and Dick Wei think that the correction in the share price of Vipshop Holdings Ltd-ADR (NYSE:VIPS was unjustified. They reiterated their Outperform rating for the stock and emphasized that it is their sector pick.

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Sequoia beneficially owns 9.3 million shares of Vipshop Holdings Ltd-ADR (NYSE:VIPS) as of August 29, 2014. Last week, the management of the company submitted regulatory filings with the Securities and Exchange Commission (SEC) regarding their intention to sell 0.21 million shares.

Proposed dual-class share structure

The company is scheduled to vote for the proposed adoption of a dual-class share structure wherein its authorized share capital will be reorganized and re-designated into Class A and Class B ordinary shares. Each Class A share will be entitled to one vote while each Class B share will be entitled to ten votes on all matters subject to vote at general meetings.

The analysts noted that the management of Vipshop Holdings Ltd-ADR (NYSE:VIPS) was confident about the growth target of the company for the current fiscal year during the investment research firm’s C-level internet conference last week. The company did not provide a long-term guidance at the time.

The best among Chinese e-commerce players

Analysts Zhou and Wei believed that the key metrics for the price performance of the shares of Vipshop Holdings Ltd-ADR (NYSE:VIP) remain active customers and top-line growth.

The analysts believed that Vipshop Holdings is the best among the companies engaged in the e-commerce industry in China. Zhou and Wei estimated that the company will be able to deliver a revenue CAGR of 93% in 2013-15E.

Vipshop may be under pressure near-term

The analyst explained that they maintained their Outperform rating and sector pick for the shares of Vipshop Holdings Ltd-ADY (NYSE:VIPS) given the fact that “it enjoys the best growth profile and track record” in their view.

According to them, the stock price of the company may be under pressure near-term and facing slower third-quarter seasonality. The analysts advised investors to “accumulate on weakness to position for better growth in the third quarter.

The analysts had a $267 price target for the shares of Vipshop Holdings Ltd-ADR (NYSE:VIPS) based on 40x 2015E non-GAAP EPS and implies 79.6x 2014E non-GAAP EPS.

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