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Dangdang's Bright Long-Term Prospects Make It a Good Investment

August 28, 2014 | About:
prabhat71

prabhat71

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E-commerce China Dangdang (DANG) again proved its strong financial position by reporting a successful quarter, achieving strong top line and gross margin growth. The company has a solid balance sheet with no debt. The management of the company is optimistic about the growth prospects.

Quarterly performance

Dangdang’s quarterly revenue came in at $316.1 million, a 31.3% improvement compared to last year’s same quarter. The bottom line of Dangdang was also impressive. The company posted EPS of $0.06, which was more than the consensus estimates by 4 cents. The company’s management is confident that it will get over its short-term weakness and can be a good long-term holding. Let us see what Dangdang has to offer.

Dangdang was struggling in the past, but it seems that the company's strong management and operational excellence has rolled out well, and as compared to last year, the company posted strong results. Dangdang is slowly gaining recognition in the market. Dangdang started off as a traditional online book store with not many competitors in the league. It is now planning to extend to various other categories such as apparel, baby and maternity products along with various other options.

The road ahead

Looking forward, Dangdang is anticipating a boom in the e-commerce industry as the consumer shopping behavior is showing positive signs. But things don’t appear as easy for Dangdang as many other companies are entering this profitable market. As Dangdang is seeing operational excellence, management is confident of holding an edge in the market among its competitors.

One such evidence of this is JD.com’s moves. JD.com is a Chinese internet retailer whose moves can be a matter of worry to Dangdang. JD.com recently entered the market with its IPO in May, and it came up with robust growth in its top line. Further, JD.com has entered into a partnership with Tencent Holdings, which can also be an added advantage.

Tencent is a big name in the industry, and being with Asia’s largest internet company, JD.com is expected to maximize its profit margin to an impressive extent. With Tencent, JD.com can improve its reach and also can deliver orders at a good rate. The brand name of Tencent will further add to JD.com's goodwill. Thus, JD.com can turn out to be the biggest threat to Dangdang if it doesn’t check its ways.

Going forward, Dangdang is well aware of its rival JD.com’s moves. Dangdang is focusing on various aspects to improve its profitability. The company is focusing on fast delivery of the orders that it gets. Delivering the orders at a faster rate will surely help Dangdang as more customers will rely on Dangdang’s commitments to provide top class services.

To achieve this, Dangdang is working with China’s third-largest delivery services: Zhongtong Yunda network. Besides this, Dangdang is also focusing on delivering faster services in local areas also by working on its delivery centers. Lastly, Dangdang is also utilizing Guan Air and railways to improve the delivery services in order to get more customer recognition, which will help it to create a strong position in the market.

Conclusion

Considering its strong moves and prospects, the weaknesses that the company is facing are for the short term. Its forward P/E of 30.33 indicates that Dangdang has enough room for good earnings growth in the future. Further, the efforts made by the company in order to improve its delivery time will surely help it in the long run, making it a good investment.

   

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