E-Commerce China Dangdang Is On Sale: Buying Opportunity?

While Vipshop and JD.com are as hot as it gets, investors seem to be underestimating Dangdang lately. Is this a buying opportunity?

Jun 17, 2014 at 9:11AM

DANG Chart

DANG data by YCharts

Chineese e-commerce company E-Commerce China Dangdang (NYSE:DANG) has fallen by nearly 37% since March, as investors seem to clearly prefer high-flying competitors such as Vipshop (NYSE:VIPS) and JD.com (NASDAQ:JD)

However, E-Commerce China Dangdang is still delivering impressive growth rates, and the company is attractively valued in comparison to Vipshop and JD.com, so recent weakness could turn out to be a buying opportunity for investors.

Down but still growing substantially
Investors seem to be disappointed with Dangdang lately, but that does not mean the business is stagnating. Far from that: Sales increased 30.1% during the first quarter of 2014 to $279.2 million.

Gross merchandise value was $190.8 million during the period, a big annual increase of 103% versus the first quarter in 2013. Dangdang has 8.6 million active customers as of the end of March 31, and it gained 2.8 million new customers during the last quarter.

E-Commerce China Dangdang is barely profitable, but margins are moving in the right direction: Gross profit margin was 18.2% of sales versus 17.2% in the first quarter of 2013. The company delivered a net income of $0.3 million in the quarter, versus a net loss in the same quarter during the prior year. 

Dangdang started as an online books retailer, but it has successfully expanded into other areas over time, particularly into big product categories such as apparel, maternity, and home products, among others.

E-commerce is an exciting business with enormous potential for expansion all over the world, and China is a high-growth country; this means that Dangdang offers exposure to substantial opportunities years ahead. With sales growing rapidly and profit margins improving, Dangdang seems to be on its way to capitalizing on its abundant possibilities.

Importantly, Dangdang trades at a considerable discount to peers Vipshop and JD.com. The company's price-to-sales ratio is around 0.9, versus a price-to-sales ratio near 3 for JD.com and 4.8 for Vipshop. 

Vipshop and JD.com capturing most of the attention
Vipshop is firing on all cylinders on the financial front, and the stock is trading near record highs after rising by a mind-blowing 427% over the last year. Vipshop offers flash sales of high-quality and popular branded products at big discounts versus traditional retail prices, and it delivered rock-solid financial performance for the first quarter of 2014.

Vipshop announced an explosive increase in revenues of 125.9% to $701.9 million during the quarter ended on March 31, versus $310.9 million in the same quarter of 2013. Active customers on the platform increased 165.1% to 7.4 million from 2.8 million, while the amount of total orders grew 129.3% year over year, reaching 20.2 million versus 8.8 million in the first quarter of 2013.

Vipshop delivered expanding profit margins during the quarter, and earnings per share came in at $0.63, comfortably above analysts' forecast of $0.48 per share. The way things are going for Vipshop, it's only natural for investors to love the stock.

JD.com is the new guy in town. The company had a very successful IPO on May 22, and it has been steeply rising since them. From an IPO price of $19 per share, JD.com has already gone to nearly $27.80, quite a remarkable performance over such a short period of time. 

The company is an online retailer with a big presence in different product categories; management claims that JD.com has a market share of 46.5% in the Chinese market. But profitability is under pressure as JD.com is actively investing for growth, so it is still losing money at this stage.

The coming Alibaba IPO is generating plenty of expectation among investors, and this may be one of the reasons that JD.com is rising so much lately; this kind of association is quite usual, even if it is not entirely rational or sustainable.

Vipshop and JD.com are attracting most of the attention when it comes to e-commerce in China lately, so maybe investors are missing the fact that Dangdang is still generating considerable growth rates while trading at a lower valuation than its peers.

Foolish takeaway
While Vipshop and JD.com are as hot as it gets, investors seem to be underestimating Dangdang lately. But the company is still generating solid growth rates and expanding profit margins, and Dangdang looks attractively valued in comparison. Maybe it's a good time to place a bid for Dangdang.

Our best stock for 2014 can make you rich
Give us five minutes and we'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks one stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Andrés Cardenal 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers