Shares of Chinese online retailer Vipshop (VIPS 0.47%) were falling hard in Tuesday trading, down 17.2% as of 3:03 p.m. ET.
The company reported earnings this morning, and while second-quarter numbers beat expectations, which were conservative heading in, third-quarter guidance may have surprised investors with regard to how weak it was.
It looks as though the Chinese consumer is still in a funk. But are Vipshop shares cheap enough to buy now? You may be surprised.
NYSE: VIPS
Key Data Points
Guiding for a decline
In the second quarter, Vipshop saw its revenue decline slightly from 27.9 billion renminbi in the year-ago quarter to 26.9 billion renminbi ($3.7 billion), down 3.6% but ahead of estimates for $3.11 billion, and earnings per share of $0.48, down about 7% but also ahead of estimates around $0.36.
Management touted how well the company has been able to streamline costs, increasing its gross and operating margins even in a tough demand environment, while maintaining positive profitability.
However, third-quarter guidance certainly left a lot to be desired, as management guided for revenue of just 20.5 billion renminbi to 21.6 billion renminbi, down 5% to 10% from the prior-year quarter. The company didn't give guidance for profitability.
Obviously, a deteriorating top line and no margin guidance is worrying to investors. Management attributed the down guidance to general market conditions, signaling the Chinese consumer is still mired in a spending recession.
Vipshop: Buy, sell, or hold?
Vipshop's shares have now lost about 35% of their value this year. And while it seems like investors should flee the scene, for those comfortable investing in Chinese equities, its shares look awfully cheap today.
Even in this tough year, the company has generated $590 million in earnings through the first six months of 2024, good for a $1.18 billion run rate. That stands in contrast to Vipshop's mere $6.3 billion market cap. And what's also attractive is that Vipshop has a net cash war chest around $3 billion on its balance sheet, giving Vipshop an enterprise value (EV) of just $3.3 billion.
That gives Vipshop a mere EV-to-earnings ratio of just 3, which is incredibly cheap. And management is doing what it should do, repurchasing $200 million worth of stock last quarter, while authorizing a new $1 billion repurchase program.
So for deep value investors willing to take the risks of investing in China, you may want to look at Vipshop following its post-earnings plunge.
