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E Commerce China - Is the party over?

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question_2 March 6, 2014 (Chinavestor) Share price of E Commerce China Dangdang (NASDAQ:DANG) surged from a sleepy $10 range to $18.55 in just two weeks. Reason for the unusual advance is fundamental. E Commerce China Dangdang (NASDAQ:DANG) returned to profitability and beat analys extpectations both on top and the bottom line. Plus it upped previous guidance going into 2014. Here is the key going forward: price is what you pay but value is what you get. And when a stock price runs up too much, too fast- like SouFun Holdings (NYSE:SFUN) and Tesla Motors (NASDAQ:TSLA) did, investors have to think how to trade the stock. Here is revenue and earnings grwoth chart, combined with stock price development, for E Commerce China Dangang (NASDAQ:DANG). The company reported sound operational results thaty translated to solid revenue and earnings gains. DANG reported profits for the fist time since 2012 Q1 and revenues beat expectations. Current stock price jump doesn't seem to be out of sync with revenue and earnings growth. This is what's behind current rally.

dang_2013Q4

But the stock is clearly overbought at this price and will have to slow down or take a breathe before climbing higher. As a matter of fact, current stock price of $18.5 is well over its trading range. See chart below for details. Never in the past two years has DANG shares traded this extreme.

DANG_Range_20140305

Another hot Chinese stock is Soufun Holdings (NYSE:SFUN). This stock is also trading way above its notmral trading range. It is highly unusual for any stock, Soufun Holdings (NYSE:SFUN) included, to trade more than two standard deviations above its mean.

SFUN_20140305

Finally, take a look at Tesla Motors (NASDAQ:TSLA), a hot US stocks from the NASDAQ. Tesla Motors (NASDAQ:TSLA) is near all time high after 2013 results. Yet the stock is not trading at extremes for its advance is not out of its trading range.

TSLA_52week_feb28

All told, when it comes to trading characteristics, both E Commerce China Dangang (NASDAQ:DANG) as well as SouFun Holdings (NYSE:SFUN) are trading at extremes. Never in recent history have these stocks traded at such extremes. And rally doesn't have to lead necessarily a decline. Tesla Motors (NASDAQ:TSLA) may be hot, but is trading just as it did before.



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