E Commerce China Dangdang Inc (ADR) (DANG), Amazon.com, Inc. (AMZN): Dang, This Stock is Hot!

Though Dangdang is transitioning to becoming more of a shopping mall, providing flash sales for brands and other marketplace options, it trades at a discount to Amazon.com, Inc. (NASDAQ:AMZN) due to fraud fears for Chinese stocks. Clearly it is impossible to expect Dangdang to repeat the long-term success of Amazon.com, Inc. (NASDAQ:AMZN), but it is executing a transition that should help it accelerate growth and margins at a faster clip than Amazon can grow.

Another Chinese internet stock, Vipshop Holdings Ltd – ADR (NYSE:VIPS) trades at substantial discounts to growth rates. Vipshop Holdings Ltd – ADR (NYSE:VIPS) calls itself the leading online retailer for Chinese brands, and expects revenue to grow 120% this year, yet the stock trades at only roughly 1 times revenue. Analysts see revenue leaping another 46% to $2.3 billion in 2014. The market cap sits at only $1.9 billion.

Even with Vipshop surging some 500% since the IPO last year, the valuation remains compelling at those levels. While investors are unlikely to give the stock a 10 times revenue multiple that a domestic stock would obtain with that growth, it doesn’t appear unreasonable for it to eventually trade at between 2 and 3 times revenue.

Bottom line

The recent gains of Dangdang would shock just about every investor as the market largely ignores Chinese stocks. Even though valuation metrics still favor buying the stock at these levels, it is difficult to buy with the continuous fears of fraud.

The incredible growth and low valuation multiple of Vipshop compared to Amazon clearly highlights the ongoing disconnect. At the very least, investors should begin following Chinese internet stocks as their valuations and long-term growth prospects make the stocks compelling as the fraud fears disappear quarter by quarter.

Everyone knows Amazon is the king of the retail world right now, but at its sky-high valuation, most investors are worried it’s the company’s share price that will get knocked down instead of competitors’.

The article Dang, This Stock is Hot! originally appeared on Fool.com.

Mark Holder and Stone Fox Capital Advisors, LLC have no positions in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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