Investors should know by now: Be careful when stocks rally ahead of posting financial reports.
Dangdang (NYSE: DANG ) posted solid quarterly results on Thursday morning. The leading Chinese online retailer posted a deficit of $0.13 a share with revenue climbing 24% to $243.3 million. The stock took a 12% hit on the news.
Dangdang didn't let investors down. Revenue and bottom-line results actually surpassed expectations. Guidance -- a sore spot with a lot of companies this earnings season -- was solid, landing just above analyst forecasts.
However, the fast-growing e-tailer had seen its shares nearly triple since bottoming out at $3.70 in April. You can't put on that kind of weight in the span of just four months and expect to fly even with a blowout quarterly report.
It was a good report, but it's hard to overcome a stock that outpaces its fundamentals.
Even Morgan Stanley, in downgrading the stock from buy to hold after the report, did it largely on a valuation basis. Despite its market leadership position in online book sales, it's hard to stand by Dangdang at 0.8 times forward sales when it was perched at a more reasonable 0.3 times that multiple back in April.
Then again, not every analyst sees it that way. HSBC's analysts actually stuck to their bullish call on the stock, bumping their price target from $7.90 to $13.45.
Dangdang certainly gets a lot of attention, even if there are a few publicly traded Chinese e-tailers that may be more worthy of more attention.
Online discounter Vipshop (NYSE: VIPS ) also posted quarterly results last week, and it saw revenue soar 160% to $351.3 million. Yes, Vipshop is growing faster and generating more revenue than Dangdang. The market wasn't impressed, sending Vipshop shares lower. Then again, the Web-based brand retailer's stock has been a six-bagger over the past year.
This naturally sets an unsettling stage for LightInTheBox (NYSE: LITB ) . The recently public retailer of dresses, household items, and other trinkets that it sources in China but sells primarily to Europe and North America reports on Tuesday. If Dangdang and Vipshop didn't please the market with seemingly stellar reports, will it be able to buck the trend?
Unlike Dangdang, Vipshop and LightInTheBox are profitable, so that will naturally help. LightInTheBox also sells most of its merchandise outside of China. Offering free worldwide shipping on larger orders has helped make it a hit in Europe, where it racks up a little more than half of its sales.
Then again, LightInTheBox has also been hot lately. The stock has more than doubled since going public at $9.50 just two months ago.
It's going to have to impress the market -- a lot -- if it doesn't join Dangdang and Vipshop in singing the sell-off blues in three-part harmony.
Find retail winners closer to home
The retail space is in the midst of the biggest paradigm shift since mail order took off at the turn of last century. Only those most forward-looking and capable companies will survive, and they'll handsomely reward those investors who understand the landscape. You can read about the 3 Companies Ready to Rule Retail in The Motley Fool's special report. Uncovering these top picks is free today; just click here to read more.