Vipshop Holdings (VIPS) has been one of the market's biggest winners, advancing almost 3,500%, since breaking out of it first stage, cup shaped based the week of September 21, 2012. Since topping the week of August 15, 2014, the stock has pulled back to the fifty day moving average, closing tight over the last three weeks along the fifty day moving average with a high volume positive reversal last week. The current consolidation is a later stage base and carries a higher risk of failure. But, despite the market's three day sell off, the stock has held up quite well, rallying over four percent in higher volume today.
From a fundamental perspective there is very little to dislike. Margins have improved from -1.4% to 3.5% over the last seven quarters and return on equity is a solid 40% and rising. The company has beaten analyst's estimates over the last four quarters by 23.8%, 19.5%, 31.3%, and 12.5%, respectively, and analyst continue to raise quarterly and annual estimates. Sales and earnings are expected to grow by 65% and 105% over the next three years, respectively, after growing well over 200% over the previous three years.
Based on current valuations and expected growth rates, the stock could trade up to $300 by the end of the year, and more then double to $500 over the next twelve to eighteen months. Traders should consider entering the stock as it breaks out above the current downtrend line around $211. Protective stops should be placed at $195 initially, and tightened as the stock follows through. Keep in mind, the late stage nature of the base and current market correction could throw cold water on any breakout attempt.
Full Disclosure: No Current Position