Investors should know by now: Be careful when stocks rally ahead of posting financial reports.
E Commerce China Dangdang Inc (ADR) (NYSE:DANG) posted solid quarterly results on Thursday morning. The leading Chinese online retailer posted a deficit of $0.13 a share with revenue climbing 24% to $243.3 million. The stock took a 12% hit on the news.
E Commerce China Dangdang Inc (ADR) (NYSE:DANG) didn’t let investors down. Revenue and bottom-line results actually surpassed expectations. Guidance — a sore spot with a lot of companies this earnings season — was solid, landing just above analyst forecasts.
However, the fast-growing e-tailer had seen its shares nearly triple since bottoming out at $3.70 in April. You can’t put on that kind of weight in the span of just four months and expect to fly even with a blowout quarterly report.
It was a good report, but it’s hard to overcome a stock that outpaces its fundamentals.
Even Morgan Stanley, in downgrading the stock from buy to hold after the report, did it largely on a valuation basis. Despite its market leadership position in online book sales, it’s hard to stand by E Commerce China Dangdang Inc (ADR) (NYSE:DANG) at 0.8 times forward sales when it was perched at a more reasonable 0.3 times that multiple back in April.
Then again, not every analyst sees it that way. HSBC’s analysts actually stuck to their bullish call on the stock, bumping their price target from $7.90 to $13.45.
E Commerce China Dangdang Inc (ADR) (NYSE:DANG) certainly gets a lot of attention, even if there are a few publicly traded Chinese e-tailers that may be more worthy of more attention.
Online discounter Vipshop Holdings Ltd – ADR (NYSE:VIPS) also posted quarterly results last week, and it saw revenue soar 160% to $351.3 million. Yes, Vipshop Holdings Ltd – ADR (NYSE:VIPS) is growing faster and generating more revenue than E Commerce China Dangdang Inc (ADR) (NYSE:DANG). The market wasn’t impressed, sending Vipshop Holdings Ltd – ADR (NYSE:VIPS) shares lower. Then again, the Web-based brand retailer’s stock has been a six-bagger over the past year.
This naturally sets an unsettling stage for Lightinthebox Holding Co Ltd-ADR (NYSE:LITB). The recently public retailer of dresses, household items, and other trinkets that it sources in China but sells primarily to Europe and North America reports on Tuesday. If Dangdang and Vipshop Holdings Ltd – ADR (NYSE:VIPS) didn’t please the market with seemingly stellar reports, will it be able to buck the trend?
Unlike Dangdang, Vipshop Holdings Ltd – ADR (NYSE:VIPS) and Lightinthebox Holding Co Ltd-ADR (NYSE:LITB) are profitable, so that will naturally help. Lightinthebox Holding Co Ltd-ADR (NYSE:LITB) also sells most of its merchandise outside of China. Offering free worldwide shipping on larger orders has helped make it a hit in Europe, where it racks up a little more than half of its sales.
Then again, Lightinthebox Holding Co Ltd-ADR (NYSE:LITB) has also been hot lately. The stock has more than doubled since going public at $9.50 just two months ago.
It’s going to have to impress the market — a lot — if it doesn’t join E Commerce China Dangdang Inc (ADR) (NYSE:DANG) and Vipshop Holdings Ltd – ADR (NYSE:VIPS) in singing the sell-off blues in three-part harmony.
The article Will LightInTheBox Follow Dangdang and Vipshop Lower? originally appeared on Fool.com and is written by Rick Munarriz.
Longtime Fool contributor Rick Munarriz owns shares of LightInThe Box Holding. The Motley Fool has no position in any of the stocks mentioned.
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