At Current Valuation, Baozun Shares Have All The Positive Priced In

Baozun Inc (ADR) BZUN, a China-based ecommerce solutions provider, reported its second-quarter earnings results which prompted analysts at Deutsche Bank to downgrade the stock. Analyst Eileen Deng downgraded Baozun from Buy to Hold, with a price target boosted from $25 to $30.

Baozun's gross merchandise volume growth during its second quarter was strong and rose 63.5 percent year-over-year, ahead of the analyst's expectations of a 58 percent growth rate. Revenue, net income and guidance for the third quarter were also ahead of expectations but the case for buying the stock has come to an end.

Baozun is expected to oversee an investment of RMB15-20 million ($2.25 million to $3 million) in its SaaS product and other IT capabilities, Deng noted. On top of that the company plans to expand its Shopdog business and these investments implies both margin pressure in 2018 and limited revenue contributions from the investments.

The analyst's new price target of $30 implies a 29x multiple on 2018's P/E, which is a slight premium to Alibaba's 28x P/E multiple and a discount to Alibaba's e-commerce target P/E of 33x.

"The stock has risen 18% in the past six months (vs. Nasdaq 8%)," the analyst wrote. "We think the CY18E 30x P/E is already reflected in future catalysts. Downgrading to Hold on valuation."

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