Here’s a Reason Vipshop (VIPS) Stock is Falling

NEW YORK (TheStreet) -- Shares of Vipshop Holdings (VIPS) are down by 2.41% to $24.88 in late afternoon trading on Thursday, after litigation firm Milberg LLP announced it has filed a class action lawsuit against the China-based online retailer, which claims that the company and some of its officers violated securities law by "disseminating false and misleading statements to the investing public."

The suit was filed in the U.S. District Court for the Southern District of New York. The stock is trading on heavy volume and so far today, 23.23 million shares of Vipshop Holdings have exchanged hands as compared to its average daily volume of 6.94 million shares.

Milberg is bringing the suit on behalf of purchasers of Vipshop securities for the period between February 17, 2015 and May 11, 2015.

The firm is claiming that during this period the company made "false and/or misleading statements" and didn't disclose that it manipulated and overstated sales, receivables, profit, cash flows, and asset accounts including inventory and investments.

It is also alleged that the company's financial statements contain GAAP violations and that its internal controls over financial reporting was ineffective and as a result Vipshop's public statements were "materially false."

Vipshop has yet to issue a statement about the recent set of allegations against the company.

However, the company did make a statement on Friday, May 15, regarding complaints made against it by a short seller:

"Vipshop has been and will always endeavor to be in compliance with applicable U.S. and PRC laws and regulations. Vipshop believes the allegations are based upon unsupported speculation and contain numerous errors, representing a general misunderstanding of the company's business model and are entirely groundless."

Separately, TheStreet Ratings team rates VIPSHOP HOLDINGS LTD -ADR as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate VIPSHOP HOLDINGS LTD -ADR (VIPS) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, notable return on equity, impressive record of earnings per share growth, compelling growth in net income and solid stock price performance. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • VIPS's very impressive revenue growth greatly exceeded the industry average of 19.1%. Since the same quarter one year prior, revenues leaped by 108.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • VIPSHOP HOLDINGS LTD -ADR reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, VIPSHOP HOLDINGS LTD -ADR increased its bottom line by earning $0.23 versus $0.09 in the prior year. This year, the market expects an improvement in earnings ($0.54 versus $0.23).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Internet & Catalog Retail industry. The net income increased by 122.8% when compared to the same quarter one year prior, rising from $25.40 million to $56.58 million.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Internet & Catalog Retail industry and the overall market, VIPSHOP HOLDINGS LTD -ADR's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Powered by its strong earnings growth of 109.30% and other important driving factors, this stock has surged by 68.06% over the past year, outperforming the rise in the S&P 500 Index during the same period. Looking ahead, the stock's sharp rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
  • You can view the full analysis from the report here: VIPS Ratings Report

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