This Online Retailer May Be a Better Stock Pick Than

In the last decade, not too many stocks have performed better than , as the e-commerce leader touts impressive year-over-year growth with a disruptive business model that has caused headwinds for brick-and-mortar retailers. However, in this particular case, the best investment opportunity may not lie in Amazon, despite double-digit stock losses in 2014. Instead, there are three reasons why investors might be better served with Vipshop Holdings , a lesser known e-commerce company.

1. China has more upside potential
EMarketer estimates that the $482 billion U.S. e-commerce industry will grow 11.4% and 10.9% during the next two years. Neither Mexico nor Canada e-commerce is expected to grow much faster than the U.S. over the same period.

Meanwhile, Asia-Pacific will create more than $525 billion in e-commerce sales this year, and grow 43.3% and 34.4%, respectively, during the next two years, according to eMarketer. Meanwhile, estimates that $6 of every $10 spent on e-commerce in Asia-Pacific comes from China. As a result, investors can conclude that China presents far better growth prospects than North America, long term.

Vipshop is a Chinese e-commerce company, which already gives it a leg up on Amazon in this discussion. Amazon could theoretically become relevant in China; the company has had a presence in China through its 2004 acquisition of, a Web retailer operating in China,. Despite this presence, Amazon has yet to make a dent in the fastest growing, and now largest e-commerce region of the globe, which is not a good sign for a growth company like Amazon.

2. Opportunities to expand market share
Amazon has created nearly $82 billion in revenue during the last 12 months, mostly in the $482 billion North American e-commerce industry. Based on those numbers, I estimate that Amazon has a 17% market share of North American e-commerce.

The problem for Amazon is that expectations are high. Analysts estimate that Amazon will grow revenue by 22% and 20%, respectively, over the next two years. Given the relatively slow growth rate of U.S. e-commerce, Amazon has a rather difficult feat in order to meet bullish expectations.

As for Vipshop, it owns just 3% of China's e-commerce industry according to consulting group iResearch. Meanwhile, Alibaba's Tmall site and own 50% and 23% of the market, respectively. However, like Amazon, Vipshop is growing at a rate that far exceeds the overall market.

During Vipshop's last quarter it grew revenue by 132.5% year over year, as its active customers nearly tripled to 9.5 million. Looking ahead, analysts expect Vipshop to finish 2014 with revenue growth of nearly 115% year over year and 64% growth in 2015, both of which exceed the overall Chinese market. That said, Vipshop's advantage to grow market share lies in the fact that it is so small.

Unlike Amazon, which has more than $80 billion in 12-month revenue, Vipshop's sales total just $2.57 billion. Essentially, Vipshop has more to gain, and is already proving itself as a company that's growing in favor with consumers. In fact, Vipshop's growth is very comparable to a smaller Amazon, perhaps implying that it could one day be the next Amazon. Meanwhile, growing a leading market share presence for Amazon could prove difficult without excessive spending.

3. Vipshop has profits
Amazon has been constantly criticized for its lavish spending and lack of profits. During the last 12 months, Amazon's profit margin has been a very weak 0.22%. On the other hand, Vipshop's profit margin is 3.5% in the same period, which is impressive given its ongoing need to improve fulfillment and market itself against the likes of Alibaba and

The reason for Vipshop's impressive margin performance is its flash-selling approach. The company works with more than 350 specific brands, which at various times ship product to Vipshop in bulk. Vipshop then sells those products to its consumers at specific times, also in bulk, and at discounted prices. As a result, it also ships product in bulk.

The end result is lower inventory, quick turnarounds, and good prices for consumers, which keeps consumers coming back to its site. So far, the strategy has worked, and has produced margins that Amazon investors could only dream to see.

Foolish thoughts
All things considered, Vipshop is a company that has more upside revenue growth potential than Amazon based on both its region and its limited market share. While Vipshop is not often mentioned with the likes of Alibaba or, it is an up-and-coming company and its growth can't be denied. At 36 times next year's expected earnings, Vipshop isn't exactly a cheap stock, but given its impressive growth rate, future stock gains are more than likely.

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Brian Nichols has no position in any stocks mentioned. The Motley Fool recommends The Motley Fool owns shares of Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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