China has been one of the fastest-growing economies for several decades, but this growth was halted following the country’s strict pandemic restrictions. With China taking a U-turn in December 2022, abandoning many restrictions, apparently in response to protests, the economy is well-positioned to rebound strongly.
Therefore, it could be wise to buy fundamentally strong China stocks Vipshop Holdings Limited (VIPS), New Oriental Education & Technology Group Inc. (EDU), and Weibo Corporation (WB). These stocks are rated B (Buy) in our proprietary POWR Ratings system.
Before diving deeper into the fundamentals of these stocks, let’s discuss why it could be prudent to invest in China stocks.
Since abandoning its “zero-COVID” policy, China’s economy has bounced back strongly, with its gross domestic product (GDP) growing by 4.5% in the first quarter, the fastest in a year. China’s GDP beat analyst estimates of 4%. China’s consumer price index (CPI) rose by 0.1% year-over-year in April, the lowest inflation rate since February 2021.
The People’s Bank of China (PBOC) has been cutting rates and adding more liquidity to the financial system to boost the economy. Goldman Sachs believes the economy will grow 6% in fiscal 2023. The International Monetary Fund (IMF), in its World Economic Outlook, said that China was “rebounding strongly” and predicted that the country’s GDP would grow 5.2% this year and 5.1% in 2024.
Considering these factors, it could be wise to buy the featured stocks now. Let’s take a closer look at their fundamentals.
Vipshop Holdings Limited (VIPS)
Headquartered in Guangzhou, the People’s Republic of China, VIPS offers womenswear, menswear, sportswear, shoes and bags, accessories, baby and children products, skincare and cosmetics, home goods, other lifestyle products, and supermarket products. It also provides internet finance services. It operates in Vip.com, Shan Shan Outlets, and Others segments.
On March 31, 2023, VIPS announced that its board of directors had authorized a share repurchase program of up to $500 million of its American depositary shares or Class A ordinary shares until March 31, 2025. This is expected to create shareholder value.
In terms of forward EV/EBITDA, VIPS’s 4.65x is 50.2% lower than the 9.33x industry average. Its 5.59x forward EV/EBIT is 56.3% lower than the 12.80x industry average. Likewise, its 1.43x forward Price/Book is 40.9% lower than the 2.42x industry average.
VIPS’ gross profit for the fourth quarter ended December 31, 2022, increased 2.8% year-over-year to RMB6.90 billion ($981.30 million). Its non-GAAP net income attributable to VIPS shareholders rose 23.9% over the prior-year quarter to RMB2.23 billion ($317.14 million). In addition, its non-GAAP EPS came in at RMB18.27, representing an increase of 38.6% year-over-year.
Analysts expect VIPS EPS and revenue for the quarter ending June 30, 2023, to increase 3.6% and 7.7% year-over-year to $0.37 and $3.87 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 71.6% to close the last trading session at $14.83.
VIPS’ POWR Ratings reflect this positive outlook. VIPS has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #9 out of 46 stocks in the China industry. It has a B grade for Value and Sentiment. Click here to see the other ratings of VIPS for Growth, Momentum, Stability, and Quality.
New Oriental Education & Technology Group Inc. (EDU)
EDU provides private educational services under the New Oriental brand in the People’s Republic of China. The company operates through the following segments: Educational Services and Test Preparation Courses; Online Education and Other services. It is based in Beijing, the People’s Republic of China.
In terms of forward EV/EBITDA, EDU’s 7.03x is 24.7% lower than the 9.33x industry average. Its 10.04x forward EV/EBIT is 21.6% lower than the 12.80x industry average. Likewise, its 0.96x forward EV/Sales is 14.4% lower than the 1.12x industry average.
For the fiscal third quarter ended February 28, 2023, EDU’s net revenues increased 22.8% year-over-year to $754.15 million. Its non-GAAP operating income rose 179% over the prior-year quarter to $87.90 million. The company’s non-GAAP net income attributable to EDU came in at $95.36 million, compared to a non-GAAP net loss attributable to EDU of $95.50 million in the year-ago period.
In addition, its non-GAAP EPS attributable to EDU came in at $0.56, compared to a non-GAAP loss per share attributable to EDU of $0.56.
For the quarter ending May 31, 2023, EDU’s revenue is expected to increase 55.9% year-over-year to $817 million. Its EPS for the quarter ending June 30, 2023, is expected to increase 85.4% year-over-year to $0.89. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 205% to close the last trading session at $38.06.
EDU’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
Within the same industry, it is ranked #10. It has an A grade for Growth and a B for Sentiment and Quality. To see the additional ratings of EDU for Value, Momentum, and Stability, click here.
Weibo Corporation (WB)
Headquartered in Beijing, China, WB operates as a social media platform for people to create, distribute, and discover content. It operates in two segments, Advertising and Marketing Services, and Value-Added Services.
In terms of forward Price/Book, WB’s 0.93x is 53.1% lower than the 1.99x industry average. Its 6.84x forward EV/EBIT is 53.8% lower than the 14.81x industry average. Likewise, its 7.58x forward non-GAAP P/E is 45.6% lower than the 13.94x industry average.
WB’s non-GAAP net income attributable to WB shareholders increased 50% sequentially to $178.52 million. Its non-GAAP EPS came in at $0.75, representing an increase of 50% sequentially. Also, its adjusted EBITDA increased 7.3% sequentially to $155.27 million.
Analysts expect WB’s EPS and revenue for the quarter ending June 30, 2023, to increase 21.5% and 8.3% year-over-year to $0.56 and $487.64 million, respectively. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past six months, the stock has gained 24.5% to close the last trading session at $17.05.
WB’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It is ranked #11 in the China industry. It has a B grade for Value. Click here to see the additional ratings of WB for Growth, Momentum, Stability, Sentiment, and Quality.
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REVISED: 2023 Stock Market Outlook >
VIPS shares rose $0.08 (+0.54%) in premarket trading Tuesday. Year-to-date, VIPS has gained 8.72%, versus a 9.93% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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