Why Shares of Jumei International Holding Ltd. Popped

Is this meaningful or just another movement?

May 28, 2014 at 5:02PM

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 Jumei International Holding (NYSE:JMEI) climbed as much as 26% today as the run on Chinese online retailers continued. 

So what: Jumei, China's No. 1 online retailer of beauty products, went public on May 16 at a stock price of $22 and had been trading relatively flat before today's jump. Today's gain did not seem driven by any particular news item, though it followed a 15% spike by fellow Chinese e-commerce player JD.com yesterday. With JD.com shares soaring after its IPO last week and investors anxious for the anticipated debut of Alibaba later this year, enthusiasm seems endless for Chinese e-commerce stocks.  

Now what: The run on these stocks looks to be driven largely by momentum traders, and could lead to a bubble. At a P/E of 152, Jumei shares aren't cheap; while there is a huge market opportunity in Chinese e-commerce, with 27% growth expected this year, that doesn't mean investors should buy at any price. Jumei shares could easily move higher, but I'd be wary of stocks driven primarily by short-term traders, as shares could fall just as fast as they have risen. 

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Jeremy Bowman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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