When stock prices are falling, the best mindset to have is a long term one. High quality stocks such as Vipshop Holdings Limited has fared well over time in a fickle stock market, which is why I want to bring it into light amongst all the chaos. Below I take a look at three key features of what makes a robust defensive stock investment: its size, financial health and track record.
Vipshop Holdings Limited operates as an online discount retailer for various brands in the People’s Republic of China. Formed in 2008, and led by CEO Ya Shen, the company provides employment to 57.64k people and with the market cap of US$4.3b, it falls under the mid-cap category. Bear market volatility can have a short-term impact on large, well-established companies, but in the long-run, these businesses are likely to prevail. This is because fundamentally, nothing has changed. A fall in share price is hardly detrimental to its financial health and business operations. So, large-cap stocks are a safe bet to buy more of when the stock market is selling off.
Currently Vipshop Holdings has CN¥969m on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. Vipshop Holdings generates enough earnings to cover its interest payments, however its interest expenses are already well-covered by its interest income. Moreover, its operating cash flows amply covers its total debt by more than 2x, which is higher than the bare minimum requirement of 0.2x. Not to mention, it meets the basic liquidity requirement with current assets exceeding liabilities, which further builds on its financial strength in the face of a volatile market.
VIPS’s profit growth over the previous five years has been positive, with an average annual rate of 22%, outperfoming the industry growth rate of 22%. It has also returned an ROE of 14% recently, above the industry return of 11%. Characteristics I value in a long term investment are proven in Vipshop Holdings, and I can continue to sleep easy at night with the stock as part of my portfolio.
Next Steps:Based on these three factors, VIPS makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy VIPS, I highly urge you to understand more about the company, in particular, in these following areas:
- Future Outlook: What are well-informed industry analysts predicting for VIPS’s future growth? Take a look at our free research report of analyst consensus for VIPS’s outlook.
- Valuation: What is VIPS worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether VIPS is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.