What happened
Shares of Farfetch (NYSE: FTCH) were moving higher today after J.P. Morgan issued a bullish note on the luxury online fashion company. Farfetch also seemed to get a benefit from the Chinese government's announcement that it would do more to stabilize markets and support economic growth.
As of 2:46 p.m ET, the stock was up 19.5% today.
Image source: Getty Images.
So what
J.P. Morgan actually cut its price target on Farfetch this morning from $35 to $30, but analyst Doug Anmuth maintained an overweight rating on the stock after meeting with management, and said he believes the stock is undervalued.
He also said the company is in a much stronger position than it was two years ago, even as he lowered growth estimates since 6% of its annual gross merchandise value comes from Russia, which is now at risk.
Additionally, news that the Beijing would do more to prop up the economy after over a year of cracking down on some of the biggest Chinese companies sent Chinese stocks soaring today, including Alibaba Group Holding, which was up 34% this afternoon. Alibaba is a key partner of Farfetch as it holds a 12.5% stake in its Farfetch China joint venture, along with Cartier-owner Richemont, which also invested $250 million in Farfetch China.
China is currently Farfetch's second-biggest market by gross merchandise value, and the company expects China to become the world's largest luxury market within the next five years. Farfetch's placement on Alibaba's Tmall Luxury Pavilion is a key component to its strategy, so good news for Alibaba, especially in the form of an end to the regulatory crackdown, is good news for Farfetch.
Now what
Farfetch stock has been on a roller-coaster ride during the pandemic as revenue growth has slowed in recent quarters, but investors were encouraged by strong growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) in its fourth-quarter earnings report, and the company offered solid guidance for 2021.
There's a huge growth opportunity in luxury online fashion, and Farfetch appears to be the leader. If the company can capture the Chinese market with the help of Alibaba, it should have a bright future ahead of it.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Jeremy Bowman owns Alibaba Group Holding Ltd. The Motley Fool owns and recommends Farfetch Limited. The Motley Fool has a disclosure policy.
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