Baozun Inc (NASDAQ: BZUN), an information technology firm with a market capitalization of $3.5 billion, saw its share price increase by 43.3% over the prior three months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. Is there still an opportunity here to buy? Let’s examine Baozun’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.
Is Baozun Still Cheap?
According to my valuation models, the stock is currently overvalued by approximately -26.3%, trading at $62.92 compared to its intrinsic value of $46.40. Not the best news for investors looking to buy!
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$48.67||-22.6%|
|5-yr DCF Revenue Exit||$71.53||13.7%|
|Peer Revenue Multiples||$56.81||-9.7%|
|10-yr DCF EBITDA Exit||$53.22||-15.4%|
|5-yr DCF EBITDA Exit||$80.11||27.3%|
|Peer EBITDA Multiples||$30.39||-51.7%|
|10-yr DCF Growth Exit||$22.61||-64.1%|
|5-yr DCF Growth Exit||$22.44||-64.3%|
|Peer P/E Multiples||$31.79||-49.5%|
Click on any of the analyses above to view the latest model with real-time data.
However, will there be another opportunity to buy low in the future? Given that Baozun’s stock is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) could mean the price can sink lower, giving investors another chance to buy in the future. This is based on its beta of 3.84, which is a good indicator for share price volatility.
What Does The Future Of Baozun Look Like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations.
source: finbox.io data explorer
With EBITDA expected to grow on average of 45.8% over the next couple years, the future certainly appears bright for Baozun. It looks like higher cash flows are in the cards for shareholders, which should feed into a higher share valuation.
How This Impacts You
Many investors separate stocks into value and growth categories based on quantitative metrics. However, one of the most famous investors in the world views this as foolish. In Warren Buffett’s 1992 letter to Berkshire Hathaway shareholders, Buffett touches upon a subject at odds with much of the investment industry:
“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking… In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value.”
While investors tend to categorize stocks into value and growth, some of the most successful investors view growth as simply one component of a company’s value.
Baozun has positioned itself so that double-digit growth appears to be a reasonable assumption for the foreseeable future. However, this growth does not look highly attractive at current trading levels. As such, investors may want to hold off on buying or adding to their BZUN position for the time being.
But before making an investment decision, I recommend you continue to research Baozun to get a more comprehensive view of the company by looking at:
Risk Metrics: what is Baozun’s Altman Z score? It’s a famous formula used to predict the probability that a firm will go into bankruptcy within two years. View the company’s Altman Z score here.
Valuation Metrics: how much upside do shares of Baozun have based on the Ben Graham Formula? Take a look at our Ben Graham Formula data explorer which also compares the company’s upside to its peers.
Efficiency Metrics: how much free cash flow does Baozun generate as a percentage of total sales? Has it been increasing or decreasing over time? Review the firm’s free cash flow margin here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.