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Baozun: Why Is the Stock Trading 11% Lower Today?

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Baozun (BZUN), China’s e-commerce company, has fallen more than 11% in early market trading on Wednesday. The company announced its second-quarter earnings. Baozun reported sales of $248.2 million in the second quarter—a rise of 47.0% YoY (year-over-year). The company’s adjusted EPS rose 50.0% YoY to $0.21 in the second quarter.

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Baozun stock fell despite an earnings beat

Baozun reported sales of $167.03 million and an EPS of $0.14 in the second quarter of 2018. Analysts expected the company to post revenues of $224.54 million and an EPS of $0.18 in the second quarter of 2019. So, why did Baozun stock fall despite an earnings beat?

Baozun expected sales growth between 35% and 40% in the third quarter. The company expected revenues between $212 million and $219 million in the third quarter. The midpoint estimate was higher than analysts’ average estimate of $214.2 million. Overall, Baozun’s forecast was strong.

So, was this a case of profit-booking by investors? Baozun shares rose more than 50% year-to-date in the first eight months of 2019. The company was publicly listed in May 2018. Since then, the stock has risen 345%. Baozun has outperformed its peers including JD.com, Alibaba (BABA), Sina (SINA), and Baidu (BIDU) since 2015.

While other Chinese companies saw their stock rise due to stellar results, Baozun experienced a pullback.

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What drove Baozun’s sales in the second quarter?

Baozun provides integrated solutions across the e-commerce value chain including warehousing and fulfillment. The company’s GMV (gross merchandise volume) rose 59% YoY in the second quarter, while the distribution GMV rose 42.8%. The number of GMV brand partners rose from 162 in the second quarter of 2018 to 202 in the second quarter.

Baozun’s CEO, Vincent Qiu, said, “Driven by a robust June 18 sales campaign, our GMV continued to gain growth momentum during the quarter while total revenue grew at its fastest pace over the past three years. Our GMV growth rate during the quarter outpaced many e-commerce marketplaces demonstrating just how effective our stellar tools are and the unique value proposition we offer to both international and domestic brand partners.”

Baozun is poised for strong growth going forward. In the second quarter, the company posted an operating income in excess of 100 million renminbi for the first time in a quarter other than the Singles’ Day quarter. The company continues to invest in technology innovation. Baozun is ramping up operations “for newly-acquired brands and are reinvesting some of our sustained profits to capture selected emerging opportunities.”

The company expects the GMV to grow between 40% and 45% in the third quarter and between 40% and 50 % in 2019.

Grossly undervalued at the current price

The recent pullback in Baozun means that the stock is currently trading at a forward PE ratio of 21.2x. The stock is grossly undervalued compared to the company’s estimated earnings growth of 65.0% in 2019 and 50.4% in 2020. Analysts expect the company sales to rise 30.5% to $1.04 billion in 2019, 30.7% to $1.36 billion in 2020, and 21% to $1.65 billion in 2021. The growth metrics are solid. Is it time to jump on the Baozun bandwagon?

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