China’s recovery from the pandemic when the rest of the world is still struggling to contain the spread of the virus is remarkable. The economy grew 4.9% in the third quarter, strongly reflecting the revival of consumer demand. Being the largest e-commerce market in the world, China’s online retail brands delivered impressive financial growth since the onset of the pandemic, as people heavily dependent on online deliveries amid social distancing restrictions.
On the other hand, with Joe Biden winning the 2020 general elections, the US-China economic ties are expected to be restored, boding well for Chinese companies operating in the United States. With a growing Chinese economy, the biggest domestic retail giants Alibaba Group Holding Ltd. (BABA), JD.com, Inc. (JD), and Vipshop Holdings Ltd. (VIPS) stand to gain significantly in the future.
Alibaba Group Holding Ltd. (BABA)
BABA is a leading Chinese E-commerce company operating internationally in four segments — Core Commerce, Cloud Computing, Digital Media and Entertainment, and Innovation Initiatives and Others. Though currently suspended, Ant IPO was set to be the biggest IPO ever recorded in history, valued at approximately $34.50 billion. BABA currently has a 33% equity stake in the Ant Financial Group and has earlier announced plans to acquire an additional 22% during the IPO.
On November 6th, BABA announced a global strategic collaboration with Richemont for accelerating the digitization of the global luxury industry and also ensuring enhanced access of the luxury brands to the Chinese market. This partnership will expand BABA’s clientele in the luxury retail industry and also leverage their expertise in retail technologies.
On October 26th, BABA signed a Memorandum of Understanding (MoU) for a strategic partnership with BMW to implement the digitalization strategy into BMW’s full business process. This partnership will allow BABA to accelerate its digital operation and drive business growth.
BABA’s third quarter (ended September 2020) revenue increased 30% year-over-year to $22.84 billion. Adjusted EBITDA increased 28% from the same period last year to $7.00 billion. The company’s annual active consumers on China retail marketplaces reached 757 million, an increase of 15 million from the prior-year quarter.
The consensus EPS estimate of $2.01 for the next quarter ending March 2021 indicates a 53.4% improvement year-over-year. Moreover, BABA beat the street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $26.60 billion for the next quarter indicates a 63.1% growth from the same period last year. The stock has gained 37% year-to-date.
How does BABA stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
A for Industry Rank
A for Overall POWR Rating.
You can’t ask for better. The stock is also ranked #1 out of 115 stocks in China.
JD.com, Inc. (JD)
JD is a Chinese retail infrastructure and e-commerce service provider that operates in two segments – JD Retail and New Businesses. The company recently agreed to acquire Kuayue Express, for RMB3 billion. This collaboration should lead to an expansion of JD’s services to the third-party merchants so that they can generate greater revenue soon and increase their overall supply chain efficiency.
JD’s revenue increased by 33.8% year-over-year to $28.50 billion in the second quarter ended June 2020. Operating income rose 122.5% from the year-ago value to $713.94 million. Annual active customer accounts increased 29.9% from the prior-year quarter to 417.40 million in the second quarter.
The consensus EPS estimate of $0.40 for the current quarter ending September 2020 indicates a 37.9% improvement year-over-year. JD has an impressive earnings surprise history as well, as it beat the street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $25.74 billion for the about-to-be-reported quarter indicates a 33.6% improvement from the same period last year. The stock has gained 140.9% year-to-date.
JD’s promising outlook is reflected in its POWR Ratings. It is rated “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, Peer Grade, and Industry Rank. It’s ranked #2 in the China industry.
Vipshop Holdings Ltd. (VIPS)
VIPS is a leading Chinese online discount retailer for a variety of brands, operating through the four segments of Vip.com, Shan Shan Outlets, Internet Finance, and Others. The company provides apparel, gears and accessories, furnishings and decor, toys and games, and home appliances through online platforms like vip.com and vipshop.com. Also, the company also offers services in warehousing, logistics, research and development, technology development, and consulting.
VIPS’ revenue grew 6% year-over-year to $3.41 billion in the second quarter ended June 2020. Net income rose 88.9% from the prior-year quarter to $217.54 million, while EPS rose 86.7% from the same period last year to $1.61. The number of active customers for the second quarter increased 17% year over year to 38.8 million.
The consensus EPS estimate of $0.26 for the current quarter ending September 2020 indicates a 4% improvement year-over-year. VIPS has an impressive earnings surprise history as well, as it beat the street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $3.27 billion for the third quarter indicates a 16.7% improvement from the same period last year. The stock has gained 51% year-to-date.
VIPS’ strong fundamentals are reflected in its POWR Ratings. It has a “Buy” rating with an “A” for Trade Grade and Industry Rank, and a “B” for Buy & Hold Grade and Peer Grade. It is ranked #18 in the China industry.
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BABA shares were trading at $266.54 per share on Tuesday afternoon, down $23.99 (-8.26%). Year-to-date, BABA has gained 25.67%, versus a 11.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More…
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