Summit Research: Vipshop 'A Key Holding' To Gain Exposure To China's eCommerce Market

Shares of Vipshop Holdings, a China-based online discount retailer, spiked higher by nearly 6 percent on Friday after Henry Guo of Summit Research maintained a Buy rating on the stock with an unchanged $31 price target.

Guo released a report following a conference call with Vipshop's management team. The analyst noted that while management acknowledged the difficult economy in China, they seem "confident" in achieving growth expectations over the near term.

Management also argued that the macro-economic impact is "limited" given the company's cyclical business nature and lower average selling price of around RMB200 (approximately $31.50) compared to other B2C (business to consumer) firms such as JD.Com Inc(ADR) JD, which has an average selling price close to RMB400 (approximately $62.96).

Related Link: JD.Com Launches Italian Fashion Mall

Top-Line Growth Ahead?

"The conference call led us to further believe the company is able to continue to grow its top-line, while maintaining stable margin profile near to medium term," Guo wrote. "We believe Vipshop is the dominant player in the China discount retailing market, a space where we don't see any meaningful competitors can really match Vipshop's merchandising capability and large scale."

Guo continued that Vipshop's offline marketing activities should allow the company to further penetrate into lower tier cities and expand its user base. Accordingly, the analyst is expecting gross margins to show a "meaningful" improvement, especially when factoring an improving fulfillment efficiency and G&A leverage opportunity.

Street's Consensus

Finally, the Street's consensus revenue estimates for the third quarter calls for a 74 percent year-over-year growth and expects a non-GAAP earnings per share of $0.13.

Guo suggested that following his call with management, the company is "comfortable" with the Street's expectations. In addition, the company's fourth-quarter revenue consensus implies a 62 percent year-over-year growth – a figure which the analyst now believes may prove to be conservative.