Baozun (NASDAQ:BZUN) is often called the "Shopify (NYSE:SHOP) of China" since it uses a similar business model focusing on bringing offline retailers online. Baozun provides retailers with digital storefronts, marketing, customer, fulfillment, and IT services -- making it a "one-stop shop" for digitizing a business.

Baozun's stock rallied nearly 160% this year, but it seemingly stalled out over the past month with a near-10% decline. Many investors likely took profits during that pullback. But I believe that Baozun's best days are still ahead for five simple reasons.

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1. The growth of Chinese e-commerce

China is the second largest economy in the world, but it has an Internet penetration rate of just 52%, compared to 89% in the US and 91% in Japan. Therefore, as incomes rise and more shoppers buy things online, China's e-commerce market will grow.

Goldman Sachs expects Chinese e-commerce sales to rise from $750 billion to $1.7 trillion between 2016 and 2020, which would be almost triple the growth rate of offline sales. That's great news for e-commerce leaders Alibaba (NYSE:BABA) and (NASDAQ:JD), and could also generate big profits for Baozun.

2. A defensible niche market

In addition to helping businesses digitize their businesses, Baozun helps them set up shop on Alibaba's Tmall and -- two of the biggest business-to-consumer (B2C) marketplaces in China.

The bears once claimed that Alibaba and JD could simply launch their own first-party platforms to cut Baozun out of the loop. Yet Alibaba is actually one of Baozun's top investors, and Baozun holds partnerships with both Alibaba and JD. This mirrors Amazon's partnership with Shopify, which was only forged after Amazon tried -- and failed -- to lure businesses away with its own Shopify-like service.

3. An evolving business

Baozun is currently expanding its core Shopdog platform, and is investing up to $3 million in its new cloud-based SaaS (software as a service) platform and IT services. Some bears claim that higher investments could crimp Baozun's margins, but these moves should widen its moat while locking in current customers.

In the past, a higher percentage of big brands -- like Starbucks and Nike -- used Baozun's services. But the new SaaS platform, called Nebula, is aimed at providing medium-sized brands with more omnichannel options. That expansion could widen Baozun's customer base and provide it with more data for analytics purposes.

4. Solid growth rates

Last quarter, Baozun's revenue rose 27% annually, and its gross merchandise volume (the total value of all goods processed through its platform) surged 64%. That marked an acceleration from its 21% sales growth and 61% GMV growth in the previous quarter.

Baozun, unlike Shopify, is also consistently profitable on a GAAP basis. Its net income jumped from 1.5 million yuan to 29.8 million yuan ($4.5 million) between the second quarters of 2016 and 2017. Its non-GAAP income grew 422% annually to 42.9 million yuan ($6.5 million).

Analysts currently expect its revenue and non-GAAP earnings to respectively rise 20% and 106% this year. For fiscal 2018, analysts expect 22% sales growth and 62% earnings growth due to higher investments in its SaaS platform and IT services.

5. Reasonable forward valuations

Many investors look at Baozun's trailing P/E of 98 and assume that it's expensive. However, its forward P/E of 28 seems reasonable, and actually looks cheap relative to its earnings growth potential. Alibaba also trades at 28 times forward earnings, while JD has a much higher forward P/E of 46.

The key takeaways

Baozun is often overshadowed by Alibaba and JD in China's e-commerce market, but it's got solid growth, reasonable valuations, and a strong, defensible business model. Therefore, investors looking for a less obvious growth play in China should take a look at Baozun -- which could experience much stronger growth over the next few years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.