“Cut-to-the-Chase” Recommendations
- Week Beginning -
Monday, January 01, 2018

by Ian Harvey

IMPORTANT NOTE: There is no stop-loss or pre-determined sell price recommended – this is left to the discretion of the individual trader.

Option Trade - Vipshop Holdings Ltd – ADR (NYSE:VIPS) Calls

Friday, January 05, 2018

** OPTION TRADE: Buy the VIPS FEB 16 2018 12.000 CALL at approximately $0.75.

Sell price is left to your own judgment.

Vipshop Holdings Ltd – ADR (NYSE:VIPS), an online discount retailer for brands in China, has a totally different business model than BABA and JD, and all three companies can coexist together. VIPS is an online discount retailer, so it does not directly compete with BABA and JD. For comparison with the situation in the US, it is like Ross Stores (ROST) competing with Best Buy (BBY). Both are retailers but their business model is totally different and they even sell different goods. The same applies to VIPS in China. VIPS revenue comes mainly from selling apparels. Selling apparels also have some advantages over selling other goods. E.g., it has higher gross margin: VIPS has 24% and JD 15%. I believe it is more appropriate to compare VIPS with other online pure-play apparel retailers.

Vipshop Holdings Limited is estimated to report earnings on Monday, February 19, 2018. Equities research analysts predict that Vipshop Holdings will post $0.20 earnings per share for the current fiscal quarter.

On average, analysts expect that Vipshop will report full-year earnings of $0.71 per share for the current financial year, with EPS estimates ranging from $0.69 to $0.72. For the next financial year, analysts anticipate that the firm will post earnings of $0.76 per share.

Also, Wall Street brokerages forecast that Vipshop Holdings will report sales of $3.52 billion for the current quarter. Analysts have provided estimates for Vipshop’s earnings, with estimates ranging from $3.52 billion to $3.53 billion. Vipshop reported sales of $2.73 billion during the same quarter last year, which indicates a positive year-over-year growth rate of 28.9%.

Analysts expect that Vipshop will report full-year sales of $3.52 billion for the current year, with estimates ranging from $10.85 billion to $10.91 billion. For the next financial year, analysts anticipate that the company will post sales of $12.91 billion per share, with estimates ranging from $12.88 billion to $12.94 billion.

Influencing Factors

VIPS is operating in a niche market. It is the largest discount retailer in China, so it is naturally the first choice retailer for companies which need to sell unsold inventory. No other competitor can offer the same customer reach. BABA and JD, of course, have more customers, but companies which sell branded goods usually do not want to mix their new collection (which is fully priced) with old collections (which are selling at a discount). VIPS has ROE > 30% and ROIC > 40%.

VIPS is trading just for 0.7 P/S ratio compared to its competitors which are trading for 2.5 multiple. Private sector valuations are also higher.

VIPS has much lower operating expenses than other competing companies. Its marketing and fulfillment expenses are less than half of its competitors.

VIPS revenue growth has dramatically slowed down from triple-digit growth in past years to high 20s percentage growth. This is typical for online apparel e-commerce companies. VIPS has filled a gap in the market, so at the beginning it has grown very fast and from now on it will grow in line with the market.

Source of future growth:

  • Total apparel sales in China are expected to growth 4.3% p.a.
  • Online market penetration is expected to increase from 31% in 2016 to 49% by 2020
  • VIPS will increase the number of active customers
  • New deal with Tencent (OTCPK: TCEHY) and JD will accelerate revenue growth

Vipshop saw an improvement to its Relative Strength (RS) Rating on Tuesday, rising from 69 to 75.

Analysts and Hedge Funds Opinions

Daiwa Capital Markets raised Vipshop from a “hold” rating to a “buy” rating in a research report on Monday.

Several other analysts have also recently commented on the company…..

  • BidaskClub raised shares of Vipshop from a “strong sell” rating to a “sell” rating in a report on Tuesday, September 12th.
  • KeyCorp set a $13.00 target price on shares of Vipshop and gave the stock a “buy” rating in a report on Thursday, October 19th.
  • UBS Group initiated coverage on shares of Vipshop in a research report on Monday, October 30th. They set a “neutral” rating and a $9.00 price target for the company.
  • Finally, JPMorgan Chase & Co. lowered their price target on shares of Vipshop from $13.00 to $10.00 and set an “overweight” rating for the company in a research report on Wednesday, November 22nd.

Four equities research analysts have rated the stock with a sell rating, three have issued a hold rating and eight have assigned a buy rating to the company’s stock. Vipshop currently has a consensus rating of “Hold” and a consensus target price of $12.95.

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

  • 1st Global Advisors Inc. boosted its position in shares of Vipshop by 1.5% in the second quarter. 1st Global Advisors Inc. now owns 10,669 shares of the technology company’s stock valued at $113,000 after acquiring an additional 160 shares during the period.
  • FNY Partners Fund LP raised its stake in shares of Vipshop by 71.9% in the second quarter. FNY Partners Fund LP now owns 11,000 shares of the technology company’s stock valued at $116,000 after purchasing an additional 4,600 shares in the last quarter.
  •  Advisors Preferred LLC acquired a new position in shares of Vipshop in the third quarter valued at $117,000.
  • BB&T Securities LLC acquired a new position in shares of Vipshop in the second quarter valued at $138,000.
Summary

VIPS has a good business model operating in a niche market. It is number 1 by a big margin. Revenue and income will grow. Even a small income growth would justify VIPS low valuation. VIPS can expand its product selection. VIPS is already selling other products, not just apparel but it represents small part of revenue. In future, it can use its registered customer base and cross sell also other products.

Vipshop has a market cap of $6,953.65, a price-to-earnings ratio of 24.42 and a beta of 2.11. The company has a quick ratio of 0.74, a current ratio of 1.05 and a debt-to-equity ratio of 0.54. Vipshop has a twelve month low of $7.79 and a twelve month high of $15.49.

Option Trade - Cal-Maine Foods Inc. (NASDAQ:CALM) Puts

Wednesday, January 03, 2018

** OPTION TRADE: Buy the CALM JAN 19 2018 40.000 PUT at approximately $0.30.

Sell price is left to your own judgment.

Cal-Maine Foods Inc. (NASDAQ:CALM), a producer and marketer of shell eggs in the United States, is expected to report earnings on Friday, January 05, before the market opens. The report will be for the fiscal Quarter ending Nov 2017. Analysts' forecasts that the consensus EPS forecast for the quarter is $0.5. The reported EPS for the same quarter last year was $-0.48.

And Cal-Maine Foods put options were on the move yesterday. A large number of contracts represents approximately 183,400 underlying shares, working out to a sizeable 54.6% of CALM's average daily trading volume over the past month, of 335,650 shares, was present for the day.

 Cal-Maine has been a challenging company to both analyze and invest in. All commodities go through up and down cycles. For shell eggs, the avian influenza outbreak during 2015 led to an extreme loss of hen laying egg production, concurrently leading to higher egg prices and substantially stronger net sales and profits for Cal-Maine.

Since the peak in the fall of 2015, Cal-Maine’s stock price has been under pressure as hen egg laying production ramped back up, inventories peaked and egg prices plummeted. This translated to a 43-percent stock price decline from Cal-Maine’s October 2015 peak at $61 to the August 2017 low-point above just above $34.

In the spring of 2017, analysts were calling for Cal-Maine’s stock price to be fairly valued in the low $30s to even below the $30 per share mark. This was expressed by both Goldman and Cleveland Research. The most important variable for Cal-Maine’s stock price continues to be egg price movements. The challenge has been as to the predictability of where prices may be headed.

Influencing Factors

Cal-Maine Foods shares are edging below the MACD Histogram zero line.  Current levels place the share price around 44.45, while the MACD indicates a bearish trend.

Currently, the 14-day ADX for Cal-Maine Foods is sitting at 15.57. Generally speaking, an ADX value from 0-25 would indicate an absent or weak trend.

Cal-Maine Foods’s Williams Percent Range or 14 day Williams %R currently sits at -74.63. In general, if the indicator goes above -20, the stock may be considered overbought. Alternately, if the indicator goes below -80, this may point to the stock being oversold.

Analysts and Hedge Funds Opinions

Zacks Investment Research lowered shares of Cal-Maine Foods from a buy rating to a hold rating in a research note released on Friday, December 22nd.

According to Zacks, “Cal-Maine Foods, Inc. is primarily engaged in the production, grading, packing and sale of fresh shell eggs, including conventional, cage-free, organic and nutritionally-enhanced eggs. The Company, which is headquartered in Jackson, Mississippi, is the largest producer and distributor of fresh shell eggs in the United States and sells the majority of its shell eggs in states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States. “

Several other analysts have also recently commented on the company…..

  • BidaskClub downgraded shares of Cal-Maine Foods from a “strong-buy” rating to a “buy” rating in a research report on Saturday, December 9th.
  • Cleveland Research raised shares of Cal-Maine Foods from a “sell” rating to a “neutral” rating in a research report on Saturday.
  • Finally, Stephens raised shares of Cal-Maine Foods from an “equal weight” rating to an “overweight” rating.

Two analysts have rated the stock with a sell rating, two have assigned a hold rating and three have given a buy rating to the stock. The company currently has an average rating of “Hold” and a consensus price target of $39.00.

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

  • Stifel Financial Corp lowered its position in Cal-Maine Foods by 49.9% in the 3rd quarter. The firm owned 7,938 shares of the basic materials company’s stock after selling 7,913 shares during the quarter. Stifel Financial Corp’s holdings in Cal-Maine Foods were worth $328,000 as of its most recent filing with the Securities and Exchange Commission (SEC).
  • Neuberger Berman Group LLC decreased its holdings in shares of Cal-Maine Foods by 2.9% during the 3rd quarter. The fund owned 1,632,735 shares of the basic materials company’s stock after selling 48,595 shares during the quarter. Neuberger Berman Group LLC owned about 3.36% of Cal-Maine Foods worth $67,105,000 as of its most recent SEC filing.
Summary

Commodity stocks are highly volatile, and it must be assumed that increasing feed costs is very likely for the future which will be a deterrent to stock price growth.

Cal-Maine Foods has a market cap of $2,159.02, a P/E ratio of -36.14 and a beta of 0.76. The company has a current ratio of 6.67, a quick ratio of 4.14 and a debt-to-equity ratio of 0.01. Cal-Maine Foods Inc. has a 52-week low of $33.40 and a 52-week high of $50.40.