Why Vipshop Shares Plummeted

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese online discount retailer Vipshop Holdings (NYSE: VIPS  ) sank 16% today after its current-quarter outlook missed Wall Street expectations.

So what: Vipshop's Q2 results managed to top estimates -- EPS of $0.20 beat by $0.01 on a revenue jump of 160% -- but downbeat guidance for the current quarter reinforces concerns over rapidly slowing traffic. While the company continues to grow both earnings and revenue at a breakneck pace, today's report suggests that it isn't growing fast enough to justify its seemingly lofty valuation.  

Now what: Management now sees Q3 revenue of $365 million-$370 million, below Wall Street's view of $376.1 million. "Building upon our increased operation and scale effect, we remain confident that our market leadership position will continue to help us deliver strong returns for our shareholders over the long term," Chairman and CEO Eric Shen reassured investors. Of course, when you couple Vipshop's still-questionable business model with the stock's still-fiery stock price -- it's still over 700% from its 52-week lows -- I'd continue to be cautious about buying into that bullishness.

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