As investors, we always seek the next big idea that could give us attractive long-term investment returns. But with the S&P 500 near its all-time high, finding a good idea is challenging these days.
One way to overcome this challenge is to look beyond US companies for ideas. Doing that will help you expand your targeted pool of companies, diversify your portfolio, and reduce risk by exposing you to different markets and economies.
As such, we will explore one solid Chinese e-commerce company listed in the US: Vipshop(NYSE: VIPS). Let's see why it could be a solid winner for investors.
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Vipshop has a solid execution track record
Vipshop is an established e-commerce company in China that most U.S. investors likely do not know. It focuses on offering deeply discounted branded products to price-conscious consumers in China. Think of it as the Chinese online version of T.J. Maxx.
Founded in 2008, Vipshop has a very focused strategy to help it survive (and prosper) in an otherwise highly competitive e-commerce market. It specializes in flash sales and offers deep discounts on branded products, particularly in the fashion and beauty sectors. This strategy creates a sense of urgency among customers, allowing them to access high-quality branded products at low prices.
By offering customers a wide range of branded products at low prices, Vipshop has built up a loyal customer base -- in 2022, it had 73 million repeat customers (customers who bought at least twice during the year), accounting for 86% of the company's active customer base. Of these, 6.7 million were "Super VIP" active customers, those who spent at least 8 times more than the average active customer in 2022.
With the support of its repeat customers, Vipshop has grown its business by leaps and bounds over the years. Revenue rose more than tenfold, from 10 billion yuan in 2013 to 103 billion yuan in 2022. Net profit surged almost twentyfold, from 321 million yuan to 6.3 billion yuan.
Vipshop's prospects look bright
Vipshop has been a remarkable growth stock over the years, as shown by its solid performance. The good news is that this trend can likely continue for a while.
For one thing, the Chinese e-commerce market is massive (reaching more than $3 trillion in 2022) and growing. Vipshop's 103 billion yuan in sales ($15 billion) in 2022 is barely 1% of this opportunity. Similarly, its 85 million shoppers in 2022 accounted for about 10% of China's online shoppers.
Besides attracting new shoppers, Vipshop can continue to grow existing customer wallet share over time. For instance, less than 10% of its 85 million active customers were Super VIP customers. Converting more customers into Super VIPs will keep Vipshop busy for many years.
To attract new customers and retain existing ones, Vipshop must continue to delight users with an ever-growing selection of branded products at unbeatable prices. So long as it continues to do that, it stands a good chance of retaining (and possibly expanding) its market share in this niche.
Keeping Vipshop on your radar
Overall, there are plenty of things to like about this under-the-radar Chinese e-commerce company. It has a demonstrable track record of growth and profitability, and its prospects remain bright.
Still, investors shouldn't rush into buying any stock, especially if the company is new to them. It's best to monitor a company for a while to understand its business operations. Keeping Vipshop on the watchlist may be the best move for now.
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Lawrence Nga 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.
