One of China's streakiest stocks is Vipshop Holdings (VIPS 2.93%), and the Chinese online discounter of brand-name apparel is probably going to be on the move when it reports fresh financials on Monday. Vipshop posts its fourth-quarter results after Monday's market close, and the numbers along with any comments from company during the following morning's earnings call will dictate the stock's direction in Tuesday's trading.
Vipshop's volatility is the stuff of legend. This was a stock that more than doubled for three consecutive years from 2012 to 2014, only to shed nearly half of its value in the two following years. The stock drifted higher last year, but it's on fire in 2018, with the shares up 31% year to date. Momentum is in its corner, but there is still a lot that can go wrong with its upcoming report.
1. Revenue growth can continue to decelerate
Year-over-year revenue growth has decelerated for five consecutive quarters, and investors are bracing for more of the same this time around. Vipshop's top-line growth slowed to 28% in its previous quarter, and its mid-November guidance was calling for 20% to 25% improvement for the fourth quarter. Analysts are perched at the midpoint of that range.
Slowing growth isn't a deal-breaker, but the consistent deceleration can prove thorny. Soft revenue and guidance calling for growth to slip to the teens for the new quarter could send scurrying the growth investors who have piled on to the stock this year.
2. The synergies of darling investors may not click
Vipshop stock gained steam in late 2017 after Tencent Holdings (TCEHY -0.24%) and JD.com (JD 2.69%) invested a combined $863 million in the much smaller online company. Tencent and JD.com now have a 7% and 5.5% stake in Vipshop, respectively.
These aren't passive investments, as Vipshop will be integrated within some high-traffic platforms at Tencent and JD.com. It's too soon to know how much of an incremental impact the associations will have, but if Vipshop talks up any potential integration snags or provides an unflattering update, it may mark down the stock.
3. Negative earnings growth can get worse
The only thing worse than slowing revenue growth is profitability that goes the wrong way. Vipshop has posted back-to-back quarters of declining earnings, and analysts see that unfortunate streak stretching to three periods on Monday night. Wall Street pros are modeling net income of $0.20 a share, well below the $0.25 it posted a year earlier.
A cutthroat climate has been keeping markups in check with heavy investments in promotional activity. With active customer growth slowing -- up 22% to 60.5 million over the trailing 12 months ended in September -- Vipshop can't afford to stop investing in attraction and retention. The stock has been moving higher in recent weeks despite the inability to grow the bottom line, but that narrative will get old fast if it continues.