Baozun: A Chinese Tech Stock Trading at a Deep Discount
12 Julho 2022 - 07:55AM
Finscreener.org
Baozun (NASDAQ: BZUN)
is a China-based e-commerce service provider that offers an array
of services. It sets up and integrates an organizationU+02019s IT
infrastructure, designs and sets up their online stores, operates
those online stores, conducts functions such as visual
merchandising and marketing campaigns, provides customer services,
and also helps them in their warehousing and order fulfillment
activities.
Just like most growth stocks in
2022, Baozun has suffered as well. As a result of the market
conditions the stock has lost close to 25% of its value this year
so far and almost 70% in the last year. Compared to the S&P
500 which has lost 20% and 12% during the same period, Baozun has
turned in a poor show.
Baozun stock offers massive potential
China is one of the largest
e-commerce markets in the world, even ahead of the United States,
and is thus the most lucrative. As per
Statista, the market’s revenue might reach $1,412
billion by the end of this year and $1,626 billion by 2025 growing
at a CAGR of 4.82%.
A key advantage for Baozun is its
unique business model that ensures growth. It provides a platform
for foreign companies to expand their operations in China.
Previously, every foreign company that wanted to enter the
lucrative Chinese online shopping sector had to set up their own
Chinese subsidiaries and then build up their own sales and tech
teams while complying with several other unknown and unpredictable
regulations at the same time.
However, with Baozun this entire
process has been simplified. The company is an end-to-end platform
for e-commerce. It performs marketing and logistics functions on
behalf of the foreign brands who simply need to outsource all those
associated tasks to it.
As a result, many foreign
companies like Nike (NYSE: NKE)
and Starbucks (NASDAQ:
SBUX) have chosen Baozun
to establish a good hold over the Chinese e-commerce market by
outsourcing most of the critical noncore
activities.
Further, as more and more foreign
companies move to the Chinese market, Baozun will be receiving
significant advantages.
Financials missed expectations
Due to adverse market conditions,
the
first quarter financials
of Baozun for this year was not as
per the market’s expectations. Baozun’s total revenues had
decreased by 1.8% year-over-year to RMB 1,984.2 million or $313
million although the service revenues had increased by 24% to RMB
1,303.3 million or $205.6 million.
The company also incurred a loss
of $6.5 million or RMB41.2 million from its operations compared to
the income from operations of RMB52.9 million. Besides, the
operating margin was also negative at 2.1% against the 2.6% made
last year.
On the operational aspect, the
company’s Gross Merchandise Volume (GMV) came at RMB 16,997.5
million representing a 28.4% year-over-year increment while the
Distribution GMV decreased by 28.8% year-over-year instead to RMB
764.6 million.
Again, 40% of total GMV came from
non-TMALL marketplaces and channels, compared to 31.9% which had
occurred during the same time period the previous year. Further,
the number of brand partners for store operations had also
increased to 345 from 333 in the last quarter.
Baozun has literally taken off in
the last few years thanks to international businessesU+02019 desire
to dominate the Chinese e-commerce market.
However, the Chinese
governmentU+02019s tighter resolutions about Alibaba and other
comparable e-commerce firms, together with slower consumer
spending, supply chain issues, and other factors, have
significantly slowed down this rising companyU+02019s
growth.
Another factor contributing to
the companyU+02019s below-average performance has been the recent
lockdowns in China brought on by the COVID-19 outbreak this
year.
Baozun stock closed July 6 at
$10.28 and the average target price for the stock is $20.45 which
is a potential upside of almost 99%.
Although a rebound may not occur
right away, the company is currently trading at a very cheap
valuation, making it worthwhile to purchase given the potential
profits it can bring in the coming years.
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