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Is JD.Com Inc Stock Set to Rally to New All-Time Highs?

JD.Com Inc(ADR) (NASDAQ:JD) initially fell after reporting earnings at the beginning of March. It wasn’t a surprise, really. While sales were strong, the results were mixed after margins came under pressure. Higher-than-expected spending and competition weighed on JD’s bottom line results. Even though the report didn’t knock the ball out of the park, the recent price action in JD stock has been encouraging.

The question is though, is the recent bounce nearing an end or does more upside still exist?

If you allow Benchmark analyst Fawne Jiang to answer, she’ll tell you stock is going higher. Jiang maintains her buy rating and $52 price target following the company’s fourth-quarter earnings results. She acknowledged that the report was mixed and that guidance came with a “slightly soft” margin outlook for 2018.

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She does however contend that JD should “maintain solid top-line growth in 2018” and gain operating leverage down the road. Her price target implies almost $8 per share or 18% upside to current prices.

If JD stock were to hit these levels, it would vault the stock to new 52-week highs.

Valuing JD Stock

Jiang said she expects JD to maintain “solid top-line growth.” That’s the consensus among Wall Street. Analysts expect JD to grow revenue just over 30% this year. In 2019, they expect 25% growth. Further, analysts are looking for 50% earnings growth this year and 78% growth in 2019.

In other words, this $65 billion-market-cap company has some pretty impressive growth. The question now becomes, what are we paying for it? JD stock trades at 1.15 times its trailing year of revenue and just 0.85 times 2018 sales.

Admittedly, is not the most profitable company in the market.

Although positive, JD’s EBITDA is relatively low, forcing operating and profit margins close to breakeven. But the Chinese e-commerce company continues to gobble up market share and had a strong Singles Day in November. It’s not the size of Alibaba Holding Group Ltd (NYSE:BABA), but that’s okay! That doesn’t mean it can’t have a prolonged period of growth.

Analysts expect JD to nearly triple its earnings per share results from 2017 to 2019. I actually like when some companies have robust sales growth but don’t let all that money fall to the bottom line. Instead, they reinvest that capital — much like, Inc. (NASDAQ:AMZN) does — into new growth initiatives. I don’t like when companies do this at a big loss. But showing some emphasis on the bottom line while fueling top line growth is very encouraging in my eyes. That’s exactly what is doing.

As for its investments, JD has put an emphasis on cloud services, artificial intelligence, overseas expansion and logistics investment. Admittedly though, it’s also gotten into a tough battle with BABA, which adversely impacts margins.

Trading Stock

At less than 1 times 2018 sales and 32 times forward earnings estimates, stock isn’t a no-touch based on valuation. In that sense, an investor looking for a Chinese e-commerce play should consider JD stock. The question then shifts from whether to buy to what price do we pay?

chart of JD stock pricechart of JD stock price
chart of JD stock price

JD stock had been stuck in a frustrating downtrend since August, finally breaking free in December. In fact, where it found support ($36) was no surprise, as you can see on the chart. In any regard, the gap over $40 allowed JD stock to move to new 52-week highs before the recent pullback.

With $42 acting as support (thick blue line), it’s a pretty clear risk/reward level to consider buying near. $41 also looks like reasonable support. In a nutshell, investors can buy JD stock in the low-$40s with a high degree of confidence it will bounce. That’s provided we are not in the midst of a nasty market decline.

Coming into Tuesday, JD stock was looking rather unattractive near $46. Not that the bounce from its post-earnings slump was unimpressive. It was quite the opposite actually. JD was sort of in no man’s land, however. The price was almost 10% above support, but nowhere near a breakout. It left investors without much clarity and a less attractive risk/reward.

So what do we do now? If you like from a fundamental long-term perspective, then consider buying an initial position here near $44. Should the stock decline from current levels, consider adding to the position. Conservative traders will want to close their position should $41-$42 support give way.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell held no positions in the aforementioned securities.

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