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Can Dangdang Keep It Going?

By Rick Munarriz - Sep 30, 2013 at 8:49AM

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China's e-commerce darling has another great week.

China E-Commerce Dangdang (DANG) is on a roll. 

The fast-growing Chinese Internet retailer was one of last week's biggest winners, and the 10% pop isn't new. This is actually the third consecutive week that Dangdang has generated a double-digit percentage pop for investors. 

Favorable analyst moves helped fuel the rally.

Credit Suisse kicked things off by initiating coverage with a bullish rating. Analyst Dick Wei argues that Web-based businesses in China will take a more prominent role in this country's improving economy, and the growth being reported by many of China's most popular names bears that out. 

Analysts see Dangdang's revenue climbing 25% this year and another 23% come 2014. Profitability has been elusive, but at least the red ink has been narrowing. It also only helps that the reborn dot-com darling has delivered smaller deficits than Wall Street was forecasting every single quarter over the past year. 

In a Bloomberg article covering the Credit Suisse favorable coverage initiation, an Oppenheimer analyst also credits the upcoming stateside IPO listing of Alibaba as another catalyst. 

He argues that Alibaba going public will increase awareness of the handful of Chinese e-tailers that trade publicly, and that's good news for Dangdang, Vipshop (VIPS -0.21%), and LightInTheBox (LITB -1.00%)

Despite a sharp correction earlier this summer, investors have been buying back into China-based e-commerce plays. Dangdang has more than doubled this year, and Vipshop -- specializing in apparel flash sales -- has more than tripled. 

LightInTheBox didn't go public until just a few months ago, but the shares have started to bounce back after plunging on a disappointing quarterly report. LightInTheBox is based out of China and sources its merchandise from China, but most of its sales take place outside of the world's most populous nation. Europe and the Americas account for more than 80% of its sales, though that may change now that LightInTheBox made its website more accessible to key Southeast Asian territories earlier this month by offering website translations in Bahasa Malaysia, Bahasa Indonesia, and Thai.

Dangdang, Vipshop, and LightInTheBox may be catering to three entirely different markets, but all three companies are posting healthy top-line growth. Only Dangdang is not currently profitable. 

The market's starting to notice. Last week's push sent Dangdang shares back into the double digits. The stock has been so volatile that there are no guarantees that it will stay there, but Alibaba's upcoming IPO should boost the perceived valuations of all significant players if the market drives up the offering the way it has many of the most recent established IPOs. 

It would be great to see Dangdang join its peers in profitability, but that's the only blemish holding Dangdang back as it expands away from low-price books into becoming a true e-tailer of broad merchandise throughout a hungry China. 

Longtime Fool contributor Rick Munarriz owns shares of LightInThe Box. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Vipshop Holdings Limited Stock Quote
Vipshop Holdings Limited
$9.60 (-0.21%) $0.02
E-Commerce China Dangdang Inc. Stock Quote
E-Commerce China Dangdang Inc.
LightInTheBox Holding Co., Ltd. Stock Quote
LightInTheBox Holding Co., Ltd.
$0.99 (-1.00%) $0.01

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