Since Berkshire Hathaway’s (BRK.A, Financial)(BRK.B, Financial) Charlie Munger (Trades, Portfolio) is on the record this week as favoring Alibaba (BABA, Financial) for a long-term value opportunity, I decided to look into potential value opportunities in the Chinese market as well.
One stock I found worth considering is Chinese internet retailer VipShop (VIPS, Financial). This stock trades with a price-earnings ratio of just 8.3 and with a price-book ratio of just 1.48. The price-sales ratio is 1.30. These low metrics put VipShop firmly in the bargain stock category.
A bargain stock doesn't always make a good investment, but recently, this stock has been showing some strength. This week, it hit a three-month high, indicating a price recovery could be in the cards.
VipShop is huge with a market capitalization of $7.07 billion and an enterprise value of $4.90 billion. Earnings per share are up this year by 45%, and the five-year EPS growth rate is 26.50%. The company holds zero long-term debt, and the current ratio is sitting at a positive 1.30.
The GuruFocus summary of VipShop’s financials finds five good signs and two severe warning signs:
The measures of financial strength look good overall, with exemplary interest coverage and a high Piotroski F-Score of 7 out of 9.
There’s plenty of competition in the Chinese internet retail world. However, in such a fast-growing economy, there is still room for many players to post high levels of growth.
Munger recently said in the 2022 annual Daily Journal (DJCO, Financial) meeting that "We invested some money in China because we can get more value in terms of the strength of the enterprise and the price security than we could get in the U.S."
If that’s true of Alibaba, then other Chinese internet-related companies like VipShop may be of interest to value investors now looking for strength in the sector.
Note that the price of VipShop's stock is now back above the 50-day moving average (the grey line) for the first time since November – and for a longer number of days. It also appears as if that moving average may be about to begin trending upward again for the first time in many months.
