Baozun (BZUN 2.33%) stock lost ground Thursday after posting a big gain Wednesday. The China-based e-commerce services company's share price ended the trading session down roughly 9.7%.
There wasn't any company-specific news driving the pullback, but Baozun sold off in conjunction with broader market momentum impacting Chinese tech stocks. The Chinese stock market saw brutal sell-offs on Monday as investors weighed the possibility of new sanctions on that country due to its supportive relationship with Russia, the potential delisting of Chinese companies from U.S. exchanges, and a surge in coronavirus cases in China that could create additional supply chain disruptions. But Chinese stocks experienced an explosive recovery Tuesday and Wednesday as the government in Beijing pledged to be more supportive of its domestic companies and markets.
That surge, in turn, seems to have led to market conditions on Thursday in which investors chose to take profits.
Image source: Getty Images.
Should investors buy this beaten-down e-commerce stock?
Baozun now has a market capitalization of roughly $474 million, and it's valued at just 28% of this year's expected sales and 8.3 times expected earnings. Considering that this e-commerce company has generally been growing its revenue and gross merchandise volume, the stock could be viewed as dirt cheap by those metrics, but there are some good reasons why the market may be hesitant to get behind it.
Baozun helps major Western brands compete in China's e-commerce market with e-commerce platform, order fulfillment, and marketing services. The majority of its revenue comes from listings on Alibaba's Tmall platform, and the fact that Baozun is so reliant on business conducted through that tech giant's e-commerce site has become increasingly troubling for investors amid an extended period of Chinese government crackdowns and intensified regulatory actions against businesses.
For investors who are willing to embrace risk and volatility, Baozun stock may warrant a closer look. The company's valuation metrics suggest there's room for explosive shareholder returns from here, but there's also plenty of uncertainty. I own the stock in my portfolio and think there's a good chance it could bounce back to deliver big gains from its current levels, but given the multitude of potential bearish catalysts it faces, Baozun is probably not a great fit for risk-averse investors.
