By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 1/27/11 Sign up for free Cabot Wealth Advisory e-newsletter
My stock tip today is an emerging markets stock that made a splash when it came public in the U.S. in early December.
It’s E-Commerce China Dangdang (DANG), an online bookseller that’s being called “the Amazon of China.”
There’s plenty of precedent for calling a company “the _______ of China,” including Ctrip.com (the Expedia of China) and Baidu (the Google of China). And the implication that a similar business proposition will prosper in China as it has in the U.S. is actually fairly sound.
Dangdang had six million active customers in 2009 and sales of $298 million. In a country of 1.4 billion people, that leaves a ton of headroom for an ambitious company that’s pushing its way (as Amazon already has) into general merchandise and third-party sales.
My point about Dangdang is that its stock was initially priced at 16 at its IPO, so its close at 30 on its first day brought a nice premium for those who got in early. But those favored few were the only people to really luck out. Anyone who bought in at 30 on December 8 is now under water by about 30 cents, as DANG has traded in weekly swings in a tightening range.
Enormous potential isn’t enough to earn a buy rating in my book, but the combination of potential plus a stock that’s trading sideways (forming a base, in other words) is certainly enough to put it on my Watch List.
Editor's Note: Paul Goodwin is the editor of Cabot China & Emerging Markets Report, which Hulbert Financial ranked as the #1 newsletter for five years in 2009 and 2010 with a 20.5% annualized gain! Don’t miss out on any more of Paul’s great advice. Do your portfolio a favor and subscribe today. Get started now!
E-Commerce China Dangdang (DANG): Hot, fresh and risky
By Paul Goodwin, Editor of Cabot China & Emerging Markets Report
From Cabot Wealth Advisory 12/16/10 Sign up for free Cabot Wealth Advisory e-newsletter
IPOs are always risky, and those of Chinese companies are especially so.
Still, a Chinese enterprise with very a very attractive story has recently come public on the New York Stock Exchanges as an ADR (American Depositary Receipts). Listing as 
ADRs confirms a company’s commitment to abide by U.S. accounting standards, including compliance with Sarbanes/Oxley regulations. This is a significant boost to the reliability of revenue and earnings reporting.
E-Commerce China Dangdang (DANG), known as Dangdang to its friends, is an online bookseller that’s been following in Amazon’s footsteps by growing out of that category and into online retail selling of just about everything. So far the company has edged into beauty and personal care supplies, and its website provides a place for outside merchants to sell all kinds of merchandise.
The company is tiny (market cap of just $564 million), with annual sales of $298 million. Dangdang was founded in 2000, and turned its first profit in 2009. Q3 results showed a 200% increase in earnings on a 59% jump in revenue. The after-tax profit margin was 5.4%.
The stock doubled from its IPO price of 16 and hit 33 on December 10. The key will be to watch for the traditional post-IPO droop, perhaps reinforced by a correction in the broad market, and to buy DANG after it forms a new base at a significantly lower price, probably in the low 20s.
Editor's Note: Paul is the editor of Cabot China & Emerging Markets Report, which Hulbert Financial Digest named the #1 newsletter for five-year performance in 2009 and 2010. It’s also the place to find the best stocks in the growing BRIC (Brazil, Russia, India and China) markets. Find out what Paul is recommending today!
Paul Goodwin
Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report
A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the number-one-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a 74.1% return, and the top-performing investment adivsory for five years in 2009 and 2010.