E Commerce China Dangdang Inc (ADR) (DANG): Positive Momentum

Currently, Dangdang has 20 logistics centers in 11 major Chinese cities with 4.5 million square feet  of space. Just two years ago, there were centers in just five cities and only 1.9 million square feet of space. That growth helps put spending on these centers in perspective.

Source: SEC filings , all figures in millions.

Interestingly enough, during the most recent earnings report, the company announced that spending on fulfillment centers actually fell. This could mean Dangdang feels it has sufficient presence to meet customers’ needs for the time being. If revenue growth continues on its current path, it will cancel out the increased spending of the past few years and could signal a return to profitability.

Lots of risks
It’s somewhat humorous that Dangdang is referred to by some as the “Amazon of China.” The e-commerce space is far more crowded in China than it is in the United States. And in reality, Amazon  has a bigger slice of the Chinese e-commerce pie than Dangdang does.

But even these two pale in comparison to the Big Three e-commerce sites of Tmall (Alibaba), QQ Buy (Tencent), and Qihoo’s 360 Buy, which have market shares of 42%, 28%, and 16%, respectively.

So why buy Dangdang when it has such a small presence? Simply put, it’s clear that the business is growing, and Dangdang is doing what it can to remain relevant. The overall pie of Chinese commerce is growing so rapidly that any increase in market share means huge gains for smaller players like Dangdang.

And though it’s tough to do an apples-to-apples comparison, consider that Amazon currently trades for about 1.9 times sales while Dangdang goes for 0.8 times sales. If investors were to buy E Commerce China Dangdang Inc (ADR) (NYSE:DANG) for a price equal to sales, it would represent an immediate jump of 25% in the stock.

As rosy as that looks, I want to make it clear that I’m putting less than 1% of my overall holdings behind Dangdang. I think it’s shown positive business momentum, and it is worth my time to keep tabs on the stock.

The article I’m Buying This Chinese Small-Cap Stock originally appeared on Fool.com and is written by Brian Stoffel.

Fool contributor Brian Stoffel owns shares of Amazon.com. The Motley Fool recommends and owns shares of Amazon.com.

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