Why Baozun Stock Gained 11.3% in December

MarketsMotley Fool

What happened

Shares of Baozun Inc. (NASDAQ: BZUN) climbed 11.3% in December, according to data provided by S&P Global Market Intelligence. The stock's gains appear to have been a bounce-back reaction to big sell-offs that followed the e-commerce platform's third-quarter earnings release in November.

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So what

With little in the way of fresh ratings coverage or business news pertaining to Baozun hitting in December, the stock's gains last month appear to be a the result of investors seeing opportunity in the stock after the big sell-offs in November. The company released its third-quarter earnings results on Nov. 21, and shares tumbled 17% in the day's trading, then fell further as the month progressed.

The October-ended quarter saw the company post a 19% year-over-year sales increase -- its lowest since going public in 2015, and potentially worrying in light of rising operating expenses in recent quarters. However, substantial post-earnings sell-offs and rebounds are not unusual for Chinese tech and services companies, and market anxieties over the company's most recent earnings report seem to have abated.

Now what

Baozun's December momentum has carried over to 2018, with the stock up roughly 13% year to date. Shares currently trade at an ambitious 32 times forward earnings estimates, but the company has a strong position in a booming industry, so I think investors seeking exposure to the Chinese market should consider adding the stock to their holdings.

Baozun has a long runway for growth as internet adoption and engagement continue to increase in China and more businesses build their e-commerce presence. A report from Goldman Sachs estimates that the value of online sales transactions in the Middle Kingdom will increase from $750 billion in 2016 to $1.7 trillion in 2020 -- a progression that looks very favorable for Baozun.

The company is also shifting away from playing a product-fulfillment role, opting instead to focus on connecting customers with businesses and brands, and leaving shipping to third parties. That should keep costs down as Baozun scales up its business, and help it leverage the strength of its network to produce sustainable earnings growth.

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Keith Noonan 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.