As UBS downgrades Vipshop shares, should you buy or sell?

On Friday, UBS Group AG (NYSE:UBS) analysts downgraded Chinese e-commerce company Vipshop Holding Ltd (NYSE:VIPS) from buy to neutral, issuing a new price target of $17.00 per share. The analysts cited the company’s disappointing fiscal Q3 revenue guidance as one of the reasons for their downgrade.

Vipshop guided for Q3 year-over-year revenue growth of 5%-10% amid continued tech crackdown by the Chinese government.

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Moreover, UBS also pointed to the increasing e-commerce streaming competition as a potential headwind against Vipshop’s growth prospects.

In a note to investors, the analysts wrote:

We believe increasing competition from e-commerce live streaming is an issue and could limit [Vipshop’s] long term growth, as multiple apps go after value-oriented shoppers.

Vipshop shares look substantially undervalued after the stock price decline

Vipshop shares have plunged more than 66% since 23rd March, leading to a cheap price-earnings ratio of just 11.00. As a result, value investors could find the stock compelling going into the tail-end of the year.

Moreover, analysts expect Vipshop earnings per share to grow by 45% this year, and by a further 16.82% next year, making it an attractive option for growth investors. 

However, with the Chinese government continuing crackdown on e-commerce companies and competition growing rapidly, the current growth prospects could be difficult to achieve.

Therefore, investors could do better by monitoring the company’s performance over the next few quarters before buying. 

Vipshop shares seem poised for more downward movement

Technically, Vipshop shares appear to have recently hit the trendline resistance in a descending channel formation, resulting in Friday’s pullback. However, the stock still trades several levels above oversold conditions of the 14-day RSI, leaving room for more downward movement.

Therefore, investors can target extended pullback profits at approximately $13.10. On the other hand, if the VIPS stock price breaks upwards, it could find resistance at about $17.69 or higher at $20.02.

Bottom line: why it could be time to sell VIPS shares

In summary, although VIPS shares have plunged more than 45% this year, the stock recently bounced back to retest the trendline resistance. Moreover, following its disappointing Q3 sales guidance and the subsequent downgrade by UBS, the stock seems poised for more downward movement.

Therefore, it may not be too late to sell the stock amid growing concerns from Chinese government crackdowns.

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