E Commerce China Dangdang Inc (ADR) (NYSE:DANG) might be a stock with a funny name to U.S. investors, but the company has been extremely hot recently. The provider of a business-to-consumer e-commerce platform in China has surged around 100% since opening at the beginning of May at around $3.80.
In general, Chinese internet stocks have struggled over the last year or so. The sector was hot during 2010 when E Commerce China Dangdang Inc (ADR) (NYSE:DANG) came public and quickly hit $35. But since then, Chinese stocks in general have come under fraud concerns, and the growth rate of the country has slowed, leading investors to dump internet stocks regardless of value and growth potential. Even leading internet stock Baidu.com, Inc. (ADR) (NASDAQ:BIDU) has been crushed in the last year.
Improving results fueling stock
In reality, it didn’t take much for E Commerce China Dangdang Inc (ADR) (NYSE:DANG) to see improvements that led to strong stock gains. The stock only had a valuation of $300 million prior to these significant gains. With a revenue base expected to surpass $1 billion and grow around 24%, the stock could have more room to run.
The main reason for the surge in price is the strong improvement in margins. The previous concern was that the company wouldn’t ever turn a profit. For Q1 2013 the net loss dropped to only 5.5% of revenue, down from 7.6% last quarter and 9.2% in the year ago period. That substantial improvement provides some hope that E Commerce China Dangdang Inc (ADR) (NYSE:DANG) will be able to utilize its $255 million cash balance to push towards a profitable future.
Another exciting aspect is the massive 193% growth in gross merchants value (GMV) of the marketplace. While only accounting for roughly $9 million of revenue, the company continues to forecast growth nearing 200% for the current quarter.
Low China internet values
E Commerce China Dangdang Inc (ADR) (NYSE:DANG) is seen as the Chinese equivalent of an Amazon.com, Inc. (NASDAQ:AMZN) since both began as online booksellers. While Amazon.com, Inc. (NASDAQ:AMZN) transitioned away from focusing on selling books years ago, E Commerce China Dangdang Inc (ADR) (NYSE:DANG) is just now making that transition. Even with a faster growth rate and the potential in China, Amazon.com, Inc. (NASDAQ:AMZN) trades at a higher valuation than Dangdang, at nearly two times its revenue base with razor thin margins. Amazon.com, Inc. (NASDAQ:AMZN) has a market cap of over $128 billion, and revenue is expected to reach nearly $75 billion this year. The massive online retailer wasn’t even profitable last year.