Like Alibaba, JD has faced investor scrutiny of late. This scrutiny comes as a result of the tightening grip of Chinese authorities on the technology sector in China. Additionally, slowing growth in the Chinese economy has become a major concern of foreign investors.
That said, JD has shown the ability to grow comfortably in this environment. According to the company’s most recent financial results, everything is moving along better than expected. The company is beating analyst expectations, and JD’s stock price is up significantly in recent weeks.
However, JD stock is also meaningfully down from its high earlier this year. Let’s discuss whether or not JD stock looks like an attractive buy at these levels. I am bullish on the stock.
The onset of the pandemic led to a massive boom in the e-commerce sector last year. While many companies in other consumer-oriented sectors witnessed decelerating growth, JD’s top- and bottom-line numbers have exploded higher.
Interestingly, JD.com saw a significant improvement in its second quarter, as revenue surged 26% on a year-over-year basis. Q2 revenue stood at $39.3 billion, surpassing analyst predictions by $1.1 billion. Additionally, the e-commerce giant saw adjusted earnings come in at $0.45 per share as compared to estimates of $0.34.
Moreover, the number of active yearly customers surged 27%, and stood at 531.9 million. Notably, the growth of JD’s active users by a staggering 32 million is a record tally for this growing e-commerce juggernaut.
However, adjusted operating profit dropped to $400 million from $900 million, as the company invested in logistics. Being similar in many respects to Amazon, JD is forced to invest rather heavily in its infrastructure. Some investors may thus prefer Alibaba, or other asset-light tech businesses in this sector.
That’s not taking anything away from JD’s excellent performance. Indeed, various factors drove this outperformance last quarter. The ultra-popular “618 event” saw JD report record sales. The company’s expansion into smaller Chinese cities has further propelled growth. On top of this, partnerships with foreign brands such as Guerlain and Bulgari enticed more shoppers to consider JD’s offerings.
Indeed, this is a stock that appears to be firing on all cylinders right now.
Financial experts believe JD.com will see revenue growth of 28.4% in the current fiscal year. However, with an increase in spending, JD’s non-GAAP net income might drop by 20%.
Interestingly, the company is poised to post revenue and net income growth of 22% and 62.2%, respectively, in FY2022. Such estimates signify that JD stocks are trading at a valuation approximating its annual revenue.
Thus, JD stock is surprisingly quite cheap. Other Chinese tech stocks like Pinduoduo (PDD) and Alibaba are trading at six times and three times their annual sales estimates.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, JD stock is a Strong Buy. Out of 12 ratings, there are 11 Buy recommendations, and one Sell recommendation.
The average JD price target is $93.58, implying 14.8% upside potential.
JD hasn’t been impacted as much as Alibaba by anti-monopoly investigations, and hefty fines. However, being the second-largest tech conglomerate, it remains considerably exposed to the wrath of Chinese regulatory authorities.
The possibility of fresh regulatory curbs will remain a major cause of concern among investors, no matter how attractive the valuation or fundamentals are. One can only hope the company stays clear of major regulatory headwinds in the coming days.
That said, on a fundamentals basis, JD certainly looks cheap relative to its growth. This is a stock every growth investor should have on their watch list right now.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article
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