Financial Advisors Eye Vipshop Holdings (VIPS) As Stock Tanks Following Q1 Earnings

The US stock market ended last month in the green as strong performance of the tech sector helped maintain some stability offset by political turmoil and geopolitical concerns. Among the three main indexes, the tech-laden NASDAQ Composite is the absolute winner, having advanced by 4.37% in May, followed by the S&P 500 with gains of 3.01% and the Dow Jones Industrial Average, which inched by up 1.31%. At the same time, the May gains pushed the NASDAQ Composite well ahead of the other three indexes in year-to-date terms. While the Dow Jones Industrial Average was 1.64% through May and the S&P 500 appreciated by just 0.35%, the NASDAQ Composite has added 6.21% in the first five months of 2018.

In addition to strong earnings and investors’ confidence in tech stocks, the stock market was also helped by positive signals from the US Federal Reserve. While the FOMC kept the Fed Funds rate unchanged at between 1.5% and 1.75% at its meeting at the beginning of May, it suggested that a rate hike is highly likely in June, given that the inflation has hit the 2% target. The minutes of the meeting released later in May reiterated the view that a June hike will be necessary. The Fed also signaled its readiness to let inflation hover above 2% for a short period. Wall Street was also uplifted by the rollback of the Dodd-Frank Act that was signed on May 24. The rollback allows smaller banks to not be considered “too big to fail”, which would result in lower compliance costs and less oversight from the Federal Reserve. Moreover, big banks will be able to include municipal bonds in required stockpiles of assets that could be sold for funding in times of crisis.

On the other hand, further political and geopolitical tensions spread some concerns among investors. On May 8, the US announced its withdrawal from the Iran nuclear deal, despite opposition from many foreign partners, most Democratic lawmakers and some key Republicans, including some of those that opposed the deal when it was signed in 2015. Additionally, while throughout the month there were hopes regarding some mitigation for the US-China tariffs, at the end of May, the White House said it would proceed with tariffs on $50 billion worth of Chinese goods, despite a trade agreement reached earlier that month. In addition, the US slapped import tariffs on steel and aluminum from Europe, Canada, and Mexico, after having previously exempted these countries. The decision angered the largest US trade partners, while many economists and analysts suggested that the tariffs will likely increase prices for US consumers and will push the three countries towards closer economic ties with China. There also was some uncertainty regarding the US-North Korea summit. After weeks of boasting about the historical talks between President Trump and North Korean leader Kim Jong Un by Trump and his allies, which included calls to give Trump the Nobel Peace Prize, Trump called off the summit on May 24, after a week of back-and-forth statements between US and North Korean officials. However, approximately a week later, Trump announced that the summit is back on track and will take place on June 12 in Singapore.

US Investors were also keeping an eye across the pond, particularly on Italy, which has been facing a political crisis as Eurosceptic populists won the March election but couldn’t form a coalition amid a dispute with the country’s president Sergio Matarella, who was installed by the previous pro-EU government. At the end of May, Matarella called for snap elections that could take place in September.

In line with the overall market performance, Financial Advisors were also keeping a close eye on tech stocks, according to TrackStar, InvestingChannel’s official newsletter capturing and analyzing the trends of Financial Advisors. The list of the 20 most-searched tickers among Financial Advisors in May is led by Netflix, Inc. (NASDAQ:NFLX), Vipshop Holdings Ltd (ADR) (NYSE:VIPS), Apple Inc. (NASDAQ:AAPL), Tesla Inc (NASDAQ:TSLA), Helios and Matheson Analytics Inc. (NASDAQ:HMNY), and Facebook Inc. (NASDAQ:FB).

Netflix, Inc. (NASDAQ:NFLX) was the most searched ticker among Financial Advisors last month as the stock continued its growth and gained 75% in the first five months of the year. The stock’s ascension was helped by strong earnings, better-than-expected subscription numbers and the company’s commitment to release new content, which includes 86 original films planned for 2018 and a recent content production deal signed with Barack and Michelle Obama.

While Netflix, Inc. (NASDAQ:NFLX) is an expected presence in the list of the most-searched tickers, Vipshop Holdings Ltd (ADR) (NYSE:VIPS) is a stock that is not often on Financial Advisors’ radars. Moreover, in May the stock lost over 20%, which might make it a more attractive bet if we look closer into the reasons behind the decline.

Vipshop Holdings Ltd (ADR) (NYSE:VIPS) is an online discount retailer that operates in China. Its shares have climbed by over 300% in the last five years, although they are down from the highs of $25 seen in 2015. In May, the stock took a big hit on the back of the first-quarter earnings, with revenue of $3.20 billion beating the consensus estimate by $120 million, while EPS of $0.17 were lower than the expected $0.18. Investors also took issue with the second-quarter revenue guidance of $3.28 billion and midpoint, which was slightly lower than the expected $3.36 billion.

So, on the surface, it looks like investors might have overreacted by sending the stock 20% lower following the earnings report. But looking deeper, it also looks like investors are also concerned that the bulk of the company’s orders are from repeat customers.

However, at the same time, Vipshop Holdings Ltd (ADR) (NYSE:VIPS) saw the number of its Super VIP membership program increase by 54% sequentially to 1.5 million customers by March 31. The company also saw a 25% increase in total orders by 25% on the year to 90.2 million and the number of active customers jumped to 56.6 million from 55.5 million a year earlier.

In addition, Vipshop Holdings Ltd (ADR) (NYSE:VIPS) saw Chinese tech giants JD.com Inc (ADR) (NASDAQ:JD) and Tencent Holdings take stakes in the company and offer in exchange some benefits, such as prominent spots on their platforms. The partnerships could help Vipshop Holdings Ltd (ADR) (NYSE:VIPS) attract more new customers, but investors were probably disappointed that the partnerships did not provide a boost in the first quarter. However, it might take more time for some meaningful results to be reflected in Vipshop’s reports. Moreover, another thing that investors might have overlooked is that Vipshop Holdings Ltd (ADR) (NYSE:VIPS) is heavily investing in its logistics network. In the first quarter, the company delivered 99% of its orders through its in-house last mile delivery network (up from 93% a year ago). Also, last quarter, Vipshop opened an overseas warehouse in Frankfurt, Germany, adding to its existing warehouses in eight other large cities around the globe.

Finally, there’s also the fact that when Tencent and JD.com invested in the company in December, they paid a 55% premium to the stock price at the time, so they are probably expecting that their partnerships will deliver solid results in the next year or so.

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