China's economy, which had been one of the fastest-growing economies for decades, experienced a setback due to strict pandemic restrictions. However, the country made a U-turn in December 2022, lifting many of these restrictions in response to protests. As a result, the Chinese economy is expected to rebound strongly.
Given this positive outlook, it may be wise to consider investing in fundamentally strong China stocks such as Vipshop Holdings Limited (VIPS), New Oriental Education & Technology Group Inc. (EDU), and Weibo Corporation (WB). These stocks have a B (Buy) rating in our proprietary POWR Ratings system.
China's economy has shown signs of recovery since abandoning its "zero-COVID" policy. In the first quarter, the country's gross domestic product (GDP) grew by 4.5%, the fastest in a year and surpassing analyst estimates. Additionally, China's consumer price index (CPI) rose by 0.1% year-over-year in April, the lowest inflation rate since February 2021.
To further boost the economy, the People's Bank of China (PBOC) has been cutting rates and injecting liquidity into the financial system. Goldman Sachs predicts that the economy will grow by 6% in fiscal 2023, while the International Monetary Fund (IMF) forecasts GDP growth of 5.2% this year and 5.1% in 2024.
Considering these factors, it is worth exploring the fundamentals of the featured stocks. Let's take a closer look at each of them.
Vipshop Holdings Limited (VIPS)
VIPS is headquartered in Guangzhou, China, and offers a wide range of products, including clothing, accessories, skincare, cosmetics, and home goods. It also provides internet finance services. The company's forward EV/EBITDA, forward EV/EBIT, and forward Price/Book ratios are all significantly lower than the industry averages.
In the fourth quarter of 2022, VIPS reported an increase in gross profit and non-GAAP net income. Analysts expect the company's EPS and revenue to continue growing in the coming quarters. Over the past year, VIPS stock has gained 71.6%.
VIPS has an overall rating of B in our POWR Ratings system, indicating a Buy. It is ranked #9 out of 46 stocks in the China industry.
New Oriental Education & Technology Group Inc. (EDU)
EDU is a provider of private educational services in China. The company's forward EV/EBITDA, forward EV/EBIT, and forward EV/Sales ratios are all lower than the industry averages.
In the fiscal third quarter of 2023, EDU reported an increase in net revenues and non-GAAP operating income. The company's EPS and revenue are expected to continue growing in the upcoming quarters. Over the past year, EDU stock has gained 205%.
EDU has an overall rating of B in our POWR Ratings system, indicating a Buy. It is ranked #10 in the China industry.
Weibo Corporation (WB)
WB operates as a social media platform in China. The company's forward Price/Book, forward EV/EBIT, and forward non-GAAP P/E ratios are all lower than the industry averages.
WB reported an increase in non-GAAP net income and non-GAAP EPS in its latest financial results. Analysts expect the company's EPS and revenue to continue growing in the next quarter. Over the past six months, WB stock has gained 24.5%.
WB has an overall rating of B in our POWR Ratings system, indicating a Buy. It is ranked #11 in the China industry.
Overall, these China stocks have strong fundamentals and positive outlooks. Investors may consider adding them to their portfolios.
About the Author: Dipanjan Banchur
Dipanjan Banchur has a master's degree in Finance and Accounting and is an investment analyst and financial journalist. He has a strong interest in reading and analyzing emerging trends in financial markets.