China Earnings Watch: VIPS and DL

More than 90% of the stocks in the S&P 500 have already released their third-quarter results, but earnings announcements season isn’t over just yet. A number of small- and mid-cap stocks still have yet to report earnings, including two Chinese companies that I’ve taken an interest in lately. Vipshop Holdings (VIPS) and China Distance Learning (DL) are just hours away from their respective earnings announcements, so let’s dig into the details and see if there are any buying opportunities here.

Buy VIPS

Vipshop Holdings is a leading online discount retailer in China. The company targets China’s brand-oriented middle class, working with thousands of well-known brands to host online flash sales at deep discounts to regular prices.

While here in the U.S. we have off-price retailers all over the place, China is significantly underdeveloped in terms of physical brick-and-mortar discount retailers and outlets, and consumers are going directly online for discounts on popular brands.

Enter the opportunity in Vipshop. Vipshop offers a selection of branded discount products, including apparel for women, men and children, fashion goods, cosmetics, home goods and lifestyle products, footwear, sporting goods, luxury goods and gifts.

Vipshop has enjoyed explosive growth, and the analyst community expects this trend to continue in tonight’s third-quarter report. The consensus estimate calls for per share earnings of $0.02 on $863.1 million in revenue. Compared with Q3 2013, this works out to 133.3% earnings growth and 124.9% sales growth. To put things into perspective, the internet retail industry is expected to post less than 19% annual earnings growth for the third quarter.

On top of this Vipshop has beaten the consensus earnings estimate by at least 16.7% for the past several quarters running. So while VIPS shares are pulling back today, I consider this an excellent buying opportunity. VIPS is an A-rated Strong Buy in Portfolio Grader.

Hold DL

China Distance Learning is a provider of online education in China focusing on helping professionals obtain and maintain the skills, licenses, and certifications necessary to pursue careers in the areas of accounting, law, healthcare, construction engineering and other industries.

The company offers online test preparation courses as well as online foreign language courses, featuring audio-video lectures and supplemented by textbooks, tutoring, online assignments, exercises and mock examinations. The company also provides in-person professional training for accounting firms, course production services and accounting magazine content production services and it develops online platforms for its customers and provides them with technical support and maintenance services.

China Distance Learning is on deck to report fiscal fourth-quarter results around 5:00 PM ET tonight. The analyst community is calling for $0.30 earnings per share on $32.74 million in revenue. Compared with the year ago quarter this represents 11.1% earnings growth and 20.9% sales growth. The consensus EPS estimate has held steady over the past 90 days, but China Distance Learning has posted double-digit earnings surprises over the past several quarters.

I’m looking forward to this earnings report, but I wouldn’t necessarily buy more shares at this time. DL earns a C in Portfolio Grader, making it a hold in my book.

We’ll know in a few hours how these companies fared last quarter; if there’s any market moving news I’ll be sure to keep you informed in my Stock of the Day feature and this daily blog.

Sincerely,

Louis Navellier

Louis Navellier

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