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This Undervalued Chinese Tech Stock has an A+ Trade Setup

Vipshop VIPS 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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Zacks Investment Research


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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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Zacks Investment Research


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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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Zacks Investment Research


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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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TradingView


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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. 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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Zacks Investment Research


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MercadoLibre

MercadoLibre MELI 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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Zacks Investment Research


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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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TradingView


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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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Vipshop Holdings Limited (VIPS) : Free Stock Analysis Report

MercadoLibre, Inc. (MELI) : Free Stock Analysis Report

Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report

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