E-Commerce China Dangdang Inc (NYSE: DANG) is a holding company with subsidiaries operating in the business-to-consumer e-commerce space in China. The company is following in Amazon’s footsteps in that it offers more than 600,000 books for sale and has recently expanded into other media and general merchandise categories such as beauty and baby products.
On May 20, the company announced its first quarter 2011 results, showing strong growth in net revenues (up 53.4% year over year for Q1) driven largely by the company’s expansion into general merchandise:
“We continue to focus on improving our customers’ shopping experience, from browsing our websites to receiving the goods”, commented Mr. Guoqing Li, Dangdang’s Chief Executive Officer. “We provide our customers with competitive pricing and expanded product offerings, recently working on test-launching apparel in the second half of 2011. We have also accelerated our delivery speed by launching our “Lightning Plan” to provide same-day delivery service in seven major cities in China.”
DANG was recently purchased by Covestor manager Jesse Barkasy for Covestor’s Trend Following model. We asked Jesse to provide some insight into his reasons for buying DANG. His response:
I purchased DANG because I thought that it may turn into an uptrend. There seems to be a major downdraft in many Chinese stocks, however so this trade was quickly reversed. I will look for DANG, the supposed Amazon of China, to reverse its downtrend another day.
The Oxen Group at Seeking Alpha recently listed DANG as a “Top Chinese Internet Pick”, with the following rationale:
Dangdang (DANG) is actually one of the recent Chinese IPOs that we are most excited by due to its comparisons to Amazon. One thing that is true about China is that their consumer is becoming richer every day. They have a large population of shoppers, and E-Commerce China Dangdang could be the top online portal for shopping in the future.
The company is already a profitable spec play with razor thin margins. The company needs to continue to show growth in margins and earnings for us to be a Buyer, but the speculative investor…this is your stock.
Think of Amazon with triple the population. That could be Dangdang.The company has a long way to go and will have trouble creating economic moats at first. Yet, if they can create a convenient shopping experience with customer service and brand name recognition, they can create that moat.
We believe the company has the potential to do this, but for now, it is just potential. This is not even a Value play yet, but for its youth, the company has decent financial health and management scores.We will be keeping a watchful eye on them. We believe currently that the company’s worst-case scenario is around 1000% increases in operating income in the next five years with revenue increase being between 350-450%.
Watch out for DANG!
Sources:
“Dangdang Announces First Quarter 2011 Results” DANG Press Release. 5/20. https://finance.yahoo.com/news/Dangdang-Announces-First-prnews-2985125707.html?x=0&.v=1
“Top Chinese Internet Picks for Investing” The Oxen Group. Seeking Alpha, 5/23. https://seekingalpha.com/article/271274-top-chinese-internet-picks-for-investing?source=yahoo
