Vipshop (VIPS): Growth Up, Margin Up, and Stock Price Up 27% After Closing Out Logistics

Vipshop: Turned the Corner, but Caveat Emptor

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Global TMT analyst with Asia ex-Japan focus.

Mitchell Kim

Equity Bottom-Up

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<a href="https://www.smartkarma.com/entities/vipshop-holdings-ltd-adr" target="_blank" data-smartkarma-citation="entities:1088:1" rel="noopener">Vipshop Holdings (VIPS US)</a> shares fell 19% in the US trading day after the company reported its 2Q20 results that broadly met consensus top-line growth expectations (and beat on margins), but the uncertain outlook for future growth took a toll on the stock, in our view. </li>
<li>Even after today’s correction, VIPS shares are up 132% in the last 12 months. We believe there is further downside risk.  The stock was already trading near 18 x forward P/E, which implied continued low double-digit topline growth and maintaining operating profit margin of 5%+. </li>
<li>We flagged in our previous two reports -- <a href="https://www.smartkarma.com/insights/vipshop-vips-us-priced-for-perfection" target="_blank" data-smartkarma-citation="insights:39821" rel="noopener">Vipshop (VIPS US): Priced for Perfection</a> and <a href="https://www.smartkarma.com/insights/vipshop-turned-the-corner-but-caveat-emptor" target="_blank" data-smartkarma-citation="insights:38906" rel="noopener">Vipshop: Turned the Corner, but Caveat Emptor</a> --  that VIPS shares face downside risk as high expectations for continued operational improvements were built in the price. </li>
<li>All the stars did not align in 2Q20 for VIPS.  The company’s results were in sharp contrast to <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a>’s more robust quarter reported last week.</li>
<li>With the company recording just 6% growth after a decline of 12% YoY in the first quarter – which was written off because of COVID-19 –  but the results and the management conference call did nothing to calm the nerve, in our view.</li>
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Vipshop Holdings (VIPS US) shares fell 19% in the US trading day after the company reported its 2Q20 results that broadly met consensus top-line growth expectations (and beat on margins), but the uncertain outlook for future growth took a toll on the stock, in our view. 
Even after today’s correction, VIPS shares are up 132% in the last 12 months. We believe there is further downside risk.  The stock was already trading near 18 x forward P/E, which implied continued low double-digit topline growth and maintaining operating profit margin of 5%+. 
We flagged in our previous two reports -- Vipshop (VIPS US): Priced for Perfection and Vipshop: Turned the Corner, but Caveat Emptor --  that VIPS shares face downside risk as high expectations for continued operational improvements were built in the price. 
All the stars did not align in 2Q20 for VIPS.  The company’s results were in sharp contrast to JD.com Inc (ADR) (JD US)’s more robust quarter reported last week.
With the company recording just 6% growth after a decline of 12% YoY in the first quarter – which was written off because of COVID-19 –  but the results and the management conference call did nothing to calm the nerve, in our view.


Vipshop (VIPS US): Flashing Red Light Ahead