Why Vipshop Stock Soared Today

MarketsMotley Fool

What happened

Shares of Chinese discount retailer Vipshop (NYSE: VIPS) have soared today, up 10% as of 3 p.m. EST, after Bernstein upgraded the stock. Analyst Bhavtosh Vajpayee boosted his rating to outperform while more than doubling the firm's price target on Vipshop shares.

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So what

The announcement last month that Vipshop would be partnering with heavyweights Tencent (NASDAQOTH: TCEHY) and JD.com (NASDAQ: JD) played no small part in the rating change, which included a sizable investment in Vipshop from the larger companies. Vajpayee argues that the deal "promises a new tomorrow," as it could accelerate growth through incremental gains in traffic. Part of the deal included greater exposure on Tencent's and JD's respective e-commerce platforms.

Vajpayee has raised his price target on shares from $9.20 to $23.50.

Now what

Current shareholders will take a dilution hit from Vipshop issuing so many new shares to Tencent and JD, but Bernstein is still modeling for 2019 non-GAAP earnings per share to come in above consensus estimates. The analyst also believes that merchandising integration with JD should have been part of the deal, considering Vipshop's stronger position in apparel e-commerce that JD should want to tap into.

Vajpayee is confident that the companies will address some of the weaknesses in the partnership over time, although Vipshop will still need to balance growth against profitability. Emphasizing growth at any cost hurt the stock in 2017, and the analyst thinks Vipshop will adopt a more balanced approach going forward.

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