This Rare Chinese IPO Is A Big Winner
2012 has been one of the slowest years ever for IPOs of Chinese stocks on American exchanges. Just three Chinese companies went public in the US this year.
That’s way down from the peak set just two years ago. In 2010, a whopping 42 Chinese companies held initial public offerings in the US.
Why the fall off in Chinese IPOs?
Demand for Chinese stocks in general has plunged this year. Investors have been concerned about slower economic growth in China and claims of fraud against some Chinese companies.
This formidable one-two punch has kept many would-be Chinese stock IPOs on the sidelines.
But one Chinese company who braved the American IPO waters has been a huge hit with investors. That company is little-known Vipshop Holdings (VIPS).
As you can see, VIPS is on fire!
After going public at $6.00 per share in March, the stock closed at a new high of $14.56 on Friday. That’s good for a gain of 143% in just nine months time.
And after hitting a low of $4.76 in late August, the shares have soared more than 200%.
Vipshop is the leading online discount retailer in China for popular brands. They offer high quality products from over 1,900 domestic and international brands at significant discounts to retail prices.
Nike, Timberland, and The North Face are just a few of the name brands offered on Vipshop’s website.
But Vipshop isn’t your typical discount retailer…
They offer their products through a new online retail format called flash sales. A finite quantity of discounted products are offered for a limited period of time.
Vipshop says Chinese consumers love the “thrill and excitement” of flash sales.
And it’s hard to argue with their success. At the end of 2011, the company had over 12 million registered members and sales of $227 million.
But the stock’s recent success has more to do with the company’s stellar third quarter numbers.
Revenue surged by 197% from the year ago quarter to $156 million. And after excluding share-based compensation, Vipshop turned a profit for the first time in company history.
The profit was clearly a surprise to everyone. Analysts were expecting a loss of seven cents per share for the quarter.
While the company’s recent performance is laudable, it’s the future growth potential that has investors snapping up shares.
You see, China has a massive middle class, and that middle class is growing rapidly. According to the Brookings Institution, China’s middle class currently numbers around 247 million people.
It’s almost as large as the entire US population.
But China’s middle class is made up of only 18% of the total population. Compare that to the US, where the middle class is comprised of about 45% of the total population.
In other words, China’s middle class has plenty of room to expand. In fact, Brookings estimates China’s middle class will mushroom to a whopping 607 million people by 2020.
If this estimate is accurate, China’s middle class will be nearly twice as large as the current total US population.
And it’s going to be the biggest block of consumers the world has ever seen.
Given the middle class’ penchant for getting good value for their spending dollars, Vipshop stands to make a lot of money in coming years. And their stock price will likely move significantly higher as their growth potential becomes reality.
Profitably Yours,
Robert Morris
Category: Foreign Markets, Stocks
