Vipshop Shares Under Attack, YY Next?
The inevitable has happened as soaring discount online retailer Vipshop (NYSE: VIPS) finally became too irresistible a target for short sellers, who sensed the company’s stock had become a little too overinflated. This kind of attack doesn’t surprise me at all since Vipshop shares have risen more than 7-fold over the last 8 months. I’m not a big fan of short sellers in general, but I might even have to commend the attacker in this case for spotting an easy target and most likely making some big money with relatively minimal effort. This particular attack also underscores the point that short sellers who previously feasted on Chinese stocks may have recently toned down their assaults, but will continue to prey on attractive targets like Vipshop whose shares look overinflated. That brings me to my next point, namely a look at who might be some of the next targets. I’ll come back to that soon, but would quickly note that recently listed social networking site YY (Nasdaq: YY) looks like a prime candidate.
The Vipshop story began early last year, when the company launched an IPO that flopped amid dismal investor sentiment for US-listed China stocks. But then the company turned profitable, and investors who had shunned its shares initially suddenly fell in love with the company. Its stock soared from a low of about $5 last September as high as $36 earlier this month. That kind of rapid rise prompted me earlier to say that perhaps the company had climbed too quickly, and was likely to take a pause for the next year.
That rapid rise also caught the attention of a short seller named Greenwich Research Group, which spent the last few months assembling a report questioning some of Vipshop’s metrics. (report) I’m not going to comment on the veracity of the report as I haven’t read it very closely; but clearly Greenwich was motivated to follow Vipshop because it sensed the stock had become overinflated and was due for a correction. Vipshop quickly issued its own statement, after the Greenwich report came out, giving the usual list of bullet points refuting each of the claims. (company statement)
Vipshop shares tumbled 13 percent after the report came out, and have remained relatively steady in the 2 trading days since then. I suspect that most people aren’t too worried about the Greenwich report, and that instead many holders of Vipshop shares were simply looking for an excuse to sell to lock in some of their massive gains of the last few months. I also suspect that many other short sellers made some money off the fall, meaning just about everyone except for Vipshop probably profited from this latest sell-off.
This kind of tumble underscores the fact that volatile US-listed Chinese stocks will remain an attractive target for short sellers for the foreseeable future, following a steady string of attacks over the last 2 years. Companies that have risen too quickly on investor hype look like the most attractive targets, which brings me back to my observation that YY could soon become the next victim.
YY’s shares have nearly tripled from their IPO price of $10.50 last November, and now trade at just over $27. Like Vipshop, one of the company’s biggest attractions has been the fact that it’s profitable, unlike many of the younger Chinese Internet companies to list recently.
Other names that could be vulnerable to attacks due to their recent rises include China’s solar panel makers, which have rallied in recent weeks after a 2 year slump. Shares of Canadian Solar (Nasdaq: CSIQ) have nearly tripled over the last 2 months, while shares of Yingli (NYSE: YGE) and Trina (NYSE: TSL) are both up by more than 70 percent. Leading web portal Sina (Nasdaq: SINA) is also up 26 percent over the last month following a recent tie-up with e-commerce leader Alibaba, meaning the shares could also be due for a pullback and potential attack.
Bottom line: A short seller attack on Vipshop reflects that fact that Chinese firms whose shares rise too quickly will remain attractive targets for short sellers.
Related posts:
