What happened

Shares of Baozun (NASDAQ:BZUN) climbed 73.3% in the first half of 2018, according to data provided by S&P Global Market Intelligence.

BZUN Chart

BZUN price change 2018. Data source: YCharts.

The e-commerce company reported fourth-quarter earnings on March 6 and first-quarter earnings on May 17, with profits for both periods coming in ahead of the market's expectations and spurring substantial valuation gains. The strong quarterly results signaled that Baozun is successfully growing the gross merchandise volume on its platform while transitioning to a business model that's less distribution heavy and more focused on its software and service offerings.

A miniature shopping cart, three small present boxes, and a credit card sitting on top of a laptop.

Image source: Getty Images.

So what

The earnings report that Baozun published in March actually delivered sales that came in below the average analyst estimate. However, earnings per share of $0.42 came in well above the average estimate's call for per share earnings of $0.31. The miss on the top line results but big over-performance on the bottom line likely stemmed from the company moving customers from its distribution business to the services only segment, which generates less revenue but is substantially more profitable. The big earnings beat helped push the stock up 30.5% in the month.

Baozun's next big valuation increase arrived courtesy of its first-quarter earnings report in May. Sales grew 14.5% year over year in the period, the company's lowest sales growth since 2014, but earnings per share saw a jump of roughly 10% in the quarter despite it being a heavy investment period. The company increased its sales and marketing spending roughly 36% year over year and its technology and content spending by roughly 74%. Gross margin rose from 1.9% in the first quarter of 2017 to 3% in the first quarter of 2018, and operating income was up 85% year over year.

Shares then took a steep dive toward the end of June following escalating trade tensions between the U.S. and China, closing the month down 10.8%.

Now what

Because Baozun's business is focused on helping major Western brands like Nike, Microsoft, and Calvin Klein build their online-retail presence in China, it does look to be at greater risk from escalating trade tensions than many other Chinese tech companies. However, shares have rebounded from the late-June sell-offs as the likelihood of substantial impact from tariffs and new international investment regulations has receded.

BZUN Chart

BZUN price change July. Data source: YCharts.

Baozun looks to have big growth opportunities as China's online retail market expands and the company adds new brand partners to its platforms. The company could also open up substantial new growth avenues if it expands its offerings to small and medium enterprises. For long-term investors willing to weather some volatility, I think Baozun stock stands out as a smart way to benefit from momentum in China's e-commerce market.

Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. Keith Noonan owns shares of Baozun. The Motley Fool owns shares of and recommends Baozun. The Motley Fool recommends Nike. The Motley Fool has a disclosure policy.