The recent advancements in technology have led to a shift in investor focus. With the evident success of tech products such as Google, Uber, and Airbnb, many investors are looking at tech stocks eagerly. One of the tech stocks that have been able to attract good investing is Baozun (BZUN). This e-commerce solutions provider has been able to weather the storm and remain a lucrative stock option to consider for tech investors. If you are looking to invest in this stock, reading the following review will help you make a more informed decision.
Background on Baozun
Baozun is a digital logistics company that allows users to create e-commerce stores on its platform. Additionally, the company also allows them to rent out warehouses for their goods and assists them in fulfilling deliveries. You might want to think of Baozun as an upgrade on Shopify - If you were to compare it with another similar product. Baozun, however, only serves the Chinese market.
What Are The Positives?
1. An Above Average ROE
For most witty investors, the Return on Equity (ROE) is one of the first things they will look at. Simply Wall St News, describes ROE as the measure of a company’s profitability against its retained profits. Many stock market analysts view a 10% ROE to be the average indicator of a healthy stock with the potential for growth over time. While the current 5.4% ROE may seem like a potential risk, this sudden drop is because of the effect of the Coronavirus since the start of the year. Generally, most of the Chinese stocks listed on US markets experienced a drop in value since the pneumonia-like virus broke out in late 2019.
Despite the current ROE value, Baozun stock has consistently registered an above-average ROE. As late as 24th January this year, Baozun stock had an ROE of 11%. With a mean ROE that is consistently above 10%, many industry experts opine that BZUN stock will continue to increase in value.
2. Strategic Partnerships
Baozun also has strategic partners that are sure to boost its growth, increase company profitability, and stock value. Alibaba, the biggest e-commerce site in Asia, is one of the companies that Baozun collaborates with. The giant e-commerce site owns a stake estimated to be worth 17% of BZUN. With Alibaba’s dominance in the Asian e-commerce space, many expect that its continued growth will spill over to Baozun. Should this happen as analysts forecast, then Baozun will recruit more users this year, and this will boost its profitability.
Aside from Alibaba, Baozun also collaborates with some of the biggest companies in America. Its vast portfolio of partners includes renowned sports attire maker, Nike. The e-commerce logistics provider also partners with other brands like Coach and Starbucks. Starbucks has had a good run in the Asian market since it made entry there. These partnerships should they hold for the long term as many analysts hope, will boost Baozun’s growth.
3. A Focus On Infrastructure
Unlike many tech startups that fail to diversify their operations or invest in futuristic infrastructure, Baozun is writing a different narrative. The company recently invested heavily in the development of its cloud. In what seems like a step in the same direction as its partner Alibaba, analysts forecast this will help the company stay ahead of competition, especially in user data protection.
The company is also focusing on artificial intelligence in a bid to automate most of its operations and enhance user experience. We can also observe its commitment to enhancing user experience through its development of a mini-app platform for partners. These investments in infrastructure will boost the number of users on the platform. Eventually, experts expect that this can help boost revenue and the company’s profitability this year and, in the long run making Baozun stock a worthy buy.
Is There Anything To Worry About?
Like any other stock in the market, Baozun is not immune to factors that affect profitability. There are a series of happenings that as an investor, you need to look at and consider critically before investing in this stock.
a) An Inventory Loss
In late 2019, according to The Motley Fool, Baozun lost an estimated $7.6 million worth of inventory. As mentioned earlier, the company offers warehousing services to users on its platform. On this particular day, a fire razed down a third party warehouse that Baozun uses.
The report of this fire incident fueled investor panic, and additionally, other potential investors raised questions on its operating model. Such sentiments never pass without causing a problem. The value of the Baozun stock took a hit from which it is still trying to recover. A major contributing factor to the shrink of its ROE aside from the Coronavirus, is this fire incident.
b) Huawei’s Exit
For the better part of 2019, the Trade War between the USA and China stirred up the markets frequently. Google, an American company, decided to oust Huawei, a leading Chinese electronics company, from its Android platform. This move affected Baozun’s share value. Huawei was previously a partner and after its exclusion from the Android platform, it opted out of most of its strategic partnerships. Baozun was one of these companies, and this played a role in the erratic nature of its share price in 2019.
c) The Coronavirus Threat
On Singles Day in China in 2018, Baozun saw a spike of 54% on orders made on the platform. The same impressive spike in the number of orders is common during many holidays and celebrations in China. However, with the outbreak of the Coronavirus, this may affect profitability and share value especially for the first quarter of 2020. By the second week of February, there were more than 40,000 reported cases of the virus and over 900 confirmed deaths.
If you’re looking for a short-term investment, then it is wise to stay away from Baozun due to its fluctuations, which might result in unprecedented losses. However, if you are looking for a long-term investment, then Baozun stock is worth buying.
Written by Bill Vix
Read more posts by Bill Vix