Image source: Vipshop.

One of the hottest stocks when China's dot-com darlings were all the rage is struggling these days. Shares of Vipshop Holdings (NYSE:VIPS) took a hit in after-hours trading on Monday night after posting mixed financials results. 

Net revenue soared 38% to $1.8 billion during the third quarter. That may seem like heady growth, but it's actually the weakest year-over-year top-line growth for the online provider of discounted brand-name apparel and accessories. Adjusted earnings grew 32% to $89.3 million or $0.15 a share.

Vipshop's results were in line with expectations, but seeing adjusted earnings grow at a slower clip than revenue is going to raise margin concerns. Vipshop closed out the period with 20.8 million active customers, 43% ahead of where it was a year earlier. However, orders growing slower than revenue -- up 34% over the past year -- imply that the average customer is ordering less instead of more.

Bargain shopping

The top-line deceleration will continue. Vipshop's guidance calls for revenue to climb at a 30% to 33% clip during the current quarter. There was a time when Vipshop was conservative in its guidance. Six months earlier, it was eyeing 37% to 42% in top-line growth for the second quarter, only to come through with a 49% surge. Three months later, it was targeting 37% to 43% in revenue growth for the third quarter, and we now know that it landed at the low end of that range. This is the kind of gravity that will weigh on hopes that it's lowballing the way it did earlier this year.

It's the new normal for Vipshop. The stock is trading lower this year, a far cry from when it more than doubled for three consecutive years in soaring 174% in 2012, 370% in 2013, and 133% in 2014. The stock slumped 22% last year, and the after-hours drop finds the stock eyeing another double-digit percentage decline year to date. 

Deutsche Bank upgraded Vipshop stock earlier this month, slapping it with a buy rating and a $15.90 price target. Deutsche Bank analyst Alan Hellawell conceded the the third quarter would see slowing active user growth, and we did wind up seeing a sequential dip in Monday night's report. However, Hellawell's bullish turn was based on optimism for a strong fourth quarter given the popularity of China's Singles Day and the online retailer's anniversary promos in December. 

Hellawell sees growth shifting to pricier apparel over cosmetics that typically come at lower price points, but he still sees average order sizes declining as its user base migrates to younger penny-pinching customers. 2016 is shaping up to be another rough year for Vipshop, but value investors can't ignore the buying opportunity that occurs when a company grows as its market cap falls.

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