Dangdang (DANG, Financial) is making good progress as far as reducing its costs and improving the overall financial performance is concerned. For example, its marketing expenses as a percentage of total revenues declined on year-over-year basis primarily due to intense promotion during the equivalent period last year linked to the launch of the company’s sales channel.
A closer look at the different metrics
Dangdang reported quarter-over-quarter expansion as a percentage of total revenue reflecting higher marketing and advertising efforts for developing consciousness about Dangdang’s destination segments.
The company’s net cash position improved to RMB 163 billion in second quarter over RMB 1.21 billion during the previous year.
Dangdang reported no backlogs till the second quarter and further, it delivered operating cash flows of RMB 246 during the second quarter.
Turnover days for accounts receivable reduced to 1.9 days during the second quarter as compared to 4.2 days during the same period last year with greater customers adopting several online payment techniques as an alternative to cash on delivery.
The inventory turnover in days during the second quarter was 109 days, compared to 103 days during the same period last year. This signifies Dangdang’s efforts to build inventory for fresh warehouses in Chenzhou and Tianjin during the quarter.
The accounts payable turnover days were 145 during the second quarter as compared to 139 days during the same period a year ago owing to improved commercial terms with its suppliers.
TheStreet Ratings team rates Dangdang Inc. as a Sell with a ratings score of D+ owing to several weaknesses which are believed to outweigh any of the company’s strengths. The weakest point is the company’s declining profit margins.
Conclusion
Dangdang's trailing P/E and forward P/E ratios of 262.60 and 24.77 respectively represent the solid cost-cutting efforts of the company coupled with improvement in operations. Moreover, it’s better than the industry’s average P/E of 25.96, going forward. But, the profit margin of 0.34% is extremely weak. The revenue per share and diluted EPS of 14.63 and 0.05 respectively is concerning and indicate decline in shareholder earnings.
The quarterly revenue growth of 31.30% is better than the industry’s average of 20.00%. The current ratio of 1.10 is good and signifies the robustness of the company’s balance sheet. Finally, the investors are advised to invest into Dangdang Inc. looking at the solid long-term growth prospects indicated by the CAGR for the next 5 years per annum of 19.80%, above the industry’s average of 16.09% only and expect promising returns in a long run.
