What happened
Baozun (BZUN +1.27%) gained 22.6% in January, according to data from S&P Global Market Intelligence. The Chinese e-commerce software and services company saw steep sell-offs in the second half of 2018, but its stock enjoyed a bit of a rebound along with the country's technology sector and broader market last month.
Baozun shares climbed as high as $67 last summer, but trade tensions between China and the U.S., a slowdown in the Chinese economy, and sales data that sent mixed messages helped push the stock well off its highs. With such steep sell-offs, the e-commerce stock was primed for a rebound, and improving market sentiment helped its shares recover some ground last month.
Image source: Getty Images.
So what
Baozun's online-store creation suite, warehousing and order fulfillment, and customer management services make it easy for major Western brands to enter China's fast-growing e-commerce market. The Chinese tech sector lost roughly 35% of its value in 2018, highlighting the potential volatility in the space, but Baozun stock could still have big upside even after its January gains.
The company is bringing new brand partners on board its platform and appears to be implementing pricing increases that could have a big, positive impact based on the company's guidance for fourth-quarter performance. Baozun posted 25% sales growth in its third quarter, but it expects that sales growth for the December-ended quarter will surpass the 40% to 45% growth it forecasts for gross merchandise volume sold through its platform.
Check out the latest Baozun earnings call transcript.
Now what
Investing in the Chinese tech sector often means taking on a heightened degree of risk, and it wouldn't be sensible to classify Baozun as a low-risk investment. However, the company does have a strong position in an industry that looks primed for strong growth and is worth a close look for risk-tolerant investors.
China's economy might continue to see growth slow down in the near term, and economic and security tensions between the country and the U.S. create a less than rosy operating backdrop in some respects, but the long-term outlook for e-commerce in the Middle Kingdom remains promising. Baozun shares trade at roughly 23 times this year's expected earnings, and while investors should proceed with the understanding that the stock is prone to volatility, I think shareholders with a long time horizon could see very strong performance from the e-commerce specialist.
