Why Baozun Inc. Stock Jumped 23% Last Month

MarketsMotley Fool

What happened

Shares of Baozun Inc. (NASDAQ: BZUN) were ripping higher again last month, though there was little specific news out on the Chinese e-commerce company. Instead, a broader bullish wave in e-commerce stocks, including Alibaba (NYSE: BABA) as well as momentum from the stock's 161% gain last year, pushed it up 23% in January, according to data from S&P Global Market Intelligence.

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So what

Seen by investors as the Chinese of Shopify, Baozun stock continues to move higher as investor enthusiasm for Chinese e-commerce continues to grow. Alibaba, the Chinese e-commerce giant, is one of the biggest investors in Baozun, and the relationship between the two helped drive Baozun's gains last month as Alibaba finished the month up 18%. JD.com, the No. 2 Chinese e-commerce player, gained 19% in January, indicating a bullish wave for the industry.

Alibaba's recent revenue growth of 66% is just one sign of the opportunity for online retail in China. Goldman Sachs, for instance, estimates the value of online sales transactions in China will rise from $750 billion in 2016 to $1.7 trillion in 2020.

Considering the size of the Chinese market and that the internet penetration rate is just 52%, compared to 89% in the U.S., there should be significant growth ahead for Baozun, which acts as a "one-stop shop" for Chinese companies looking to sell online by providing marketing, fulfillment, and IT services.

Now what

Baozun stock has actually pulled back since the end of January, losing 8% on Feb. 2 alone, when the broad market fell more than 2%. That drop may indicate that investors are still nervous about the risk in Chinese e-commerce stocks like Baozun, and a post-earnings sell-off in Alibaba stock also seemed to weigh on Baozun.

While Chinese stocks tend to be more volatile than their American counterparts, Baozun is not as risky as it might seem -- it is profitable and its bottom line is growing quickly, with earnings expected to have doubled last year. Investors will learn more when the company reports fourth-quarter earnings later this month. However, after the stock plunged 17% on its November report, there is downside risk to the report, especially if the market continues to fall.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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