A 400% jump in the past year has transformed Miniso Group Holding Ltd. into the best-performing stock on the Nasdaq Golden Dragon China Index. Market watchers are now debating if the gains are overdone.
(Bloomberg) — A 400% jump in the past year has transformed Miniso Group Holding Ltd. into the best-performing stock on the Nasdaq Golden Dragon China Index. Market watchers are now debating if the gains are overdone.
Valuations are starting to look pricey for the Chinese budget retailer, which has relied on its value-for-money strategy and aggressive expansion to win market share. Technicals indicate that the thinly-traded stock is overbought and short interest is rising, suggesting that the rally may hit a speed bump in the near term.
The company has “consistently beaten expectations, and potential for growth is still quite significant in lower tier cities in China and overseas,” said Kevin Net, head of Asian equities at Tocqueville Finance. It is “also quite removed from some of the recent China concerns such as regulation, property market or geopolitics. But a lot of this is already reflected in the valuation.”
Miniso’s winning performance sets it apart from the subdued China consumer stock story: the firm posted record overseas revenues in the three months through June and its sales and net income have beaten analysts’ estimates for nine straight quarters. But as with all eye-popping rallies, a degree of caution is setting in.
Skeptics note that Miniso’s shares are valued at 27 forward times earnings estimate, compared with 18 times for budget app Temu’s parent PDD Holdings Inc. and Alibaba Group Holding Ltd.’s nine times.
In addition, the 14-day relative strength index indicates that Miniso’s shares have been in overbought territory since Aug. 29. Short interest on the stock has also jumped to more than 15% of the outstanding from less than 5% at end-July, according to data from IHS Markit Ltd.
Even so, some remain optimistic about Miniso’s prospects.
For one, the company’s tight supply chain management may enable it to continue to exercise effective cost control and offer a wide range of products. It also helps that Miniso plans to become a “global super brand” with the opening of its new US flagship store in Times Square in New York City in May.
The company, which had over 3,600 stores in China and more than 2,100 abroad as of end-June, targets to have its overseas operations generate 70% of its business by 2028.
Read: China Budget Retailer Opens Times Square Store in Bold US Plan
China International Capital Corp. is among Miniso’s fans. Its analysts including Wenhui Song have set a price target of $29.42 for the stock, implying a 5% upside from the close on Wednesday.
“We think it deserves a higher valuation premium” given its product strengths, branding power and global operation capabilities, the analysts wrote in a note.
–With assistance from Jeanny Yu and Henry Ren.
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