“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, March 05, 2018

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

Option Trade - Baozun Inc (ADR) (NASDAQ:BZUN) Calls

Monday, March 05, 2018

** OPTION TRADE: Buy the BZUN APRIL 20 2018 35.000 CALL at approximately $3.80. Place a pre-determined sell at $7.50.

Also include a protective stop loss of $1.50.

Classed as the Chinese of Shopify, Baozun Inc. (ADR) (NASDAQ:BZUN), offering digital and e-commerce services primarily in China, will report earnings tomorrow, Tuesday, March 6, 2018, before the market opens. The report will be for the fiscal Quarter ending Dec 2017. Analysts expect $0.41 earnings per share. MOMO’s profit will be $81.42M for 19.90 P/E if the $0.41 EPS becomes a reality. After $0.38 actual earnings per share reported by Momo Inc. for the previous quarter, Wall Street now forecasts 7.89 % EPS growth.

China is one of the world's fastest-growing economies and a key part of many companies' growth plans, but regulations and other hurdles mean that setting up shop can be difficult or outright impossible for non-domestic businesses. Baozun is a company that provides e-commerce platform services for its brand partners, enabling companies like Nike, Microsoft, and Tapestry an easy way to enter and tap into this huge growth market.

China already does more e-commerce business than anywhere else in the world, accounting for $1.1 trillion of the $2.3 trillion spent worldwide in 2017, according to eMarketer -- and all signs suggest that the country's online retail sector will continue to see robust growth.

Like Amazon, Baozun stands to benefit from having a highly scalable business model that operates at the intersection of a variety of favorable industry and economic trends. The company's core business is providing an online retail platform for its partner brands, and it looks poised to benefit as rapid economic development expands China's middle class and paves the way for more growth in that country's red-hot e-commerce space.

Influencing Factors

Baozun is currently the leader in its niche, with roughly 25% market share, and looks poised to deliver strong sales and earnings growth as it adds new brand clients and shifts to a less cost-intensive business model. The company's partnerships with JD.com and Alibaba, China's biggest online retail platforms, should also give it a sustainable defensive edge against competitors.

Even though its share price has climbed roughly 133% over the last year, Baozun still has a market cap in the $2 billion range. Along with a forward price-to-earnings ratio of roughly 32, which looks quite appealing given the company's growth prospects, the stock has a feasible runway to delivering multibagger returns that put Facebook's performance to shame.                                                                                                   

McKinsey & Company estimates that average household discretionary spending in the China's urban areas will have increased from $4,000 in 2010 to $8,000 in 2020, a trend that bodes well for consumer brands. The number of people living in those urban areas is expected to continue growing as well. Roughly 56% of the country's population lived in cities as of April 2017, and its government expects this figure to reach 60% in 2020. These developments will only add to the momentum behind online retail.

Last quarter, the total sales volume on the company's platform increased roughly 71% year over year, and its number of brand partners grew from 127 to 146. Those are encouraging statistics, but they also leave a long runway for sales growth, and profitability is on track to improve as the company shifts away from physical order distribution in favor of simply connecting vendors with consumers.

Trading at roughly 32 times forward earnings estimates, Boazun stands out as an appealing growth stock. It’s roughly $2 billion market cap means it will have an easier time delivering explosive capital appreciation than Amazon, and a confluence of macroeconomic and industry-specific growth catalysts suggest that the stock has a promising chance of making good on that potential.

Analysts and Hedge Funds Opinions

Bank of America lifted their price objective on Baozun from $38.00 to $44.00 and gave the stock a “buy” rating in a research note on Tuesday, January 30th.

Also, several other equities analysts have recently commented on the company…..

  • BidaskClub raised Baozun from a “hold” rating to a “buy” rating in a research note on Tuesday, January 9th.
  • Zacks Investment Research raised Baozun from a “strong sell” rating to a “hold” rating in a research note on Tuesday, January 23rd.
  • Finally, Vetr downgraded Baozun from a “buy” rating to a “hold” rating and set a $35.93 price objective on the stock. in a research note on Monday, January 8th.

Baozun has received an average rating of “Buy” from the six research firms that are presently covering the stock. Two equities research analysts have rated the stock with a hold recommendation, three have issued a buy recommendation and one has issued a strong buy recommendation on the company. The average twelve-month price objective among brokerages that have covered the stock in the last year is $44.00.

Institutional investors that have recently made a change to their positions in the stock….

  • WIM Asset Management HK Ltd bought a new stake in Baozun in the 4th quarter worth approximately $30,651,000.
  • Ariose Capital Management Ltd bought a new stake in Baozun in the 3rd quarter worth approximately $30,886,000.
  • Franklin Resources Inc. increased its stake in Baozun by 76.3% in the 4th quarter. Franklin Resources Inc. now owns 2,077,566 shares of the technology company’s stock worth $65,568,000 after acquiring an additional 899,021 shares during the last quarter.
  • OppenheimerFunds Inc. increased its stake in Baozun by 78.0% in the 4th quarter. OppenheimerFunds Inc. now owns 1,263,970 shares of the technology company’s stock worth $39,891,000 after acquiring an additional 553,950 shares during the last quarter.

Harvey’s Options Volatility Indicator


Baozun has a 12 month low of $13.92 and a 12 month high of $40.65. The stock has a market capitalization of $1,940.00 and a P/E ratio of 104.15.