Around the start of this year I was asked to profile five Chinese Internet stocks with long-term potential.
Last month analysts at Goldman Sachs Inc. (NYSE:GS), who like me are becoming more bearish as the bull market roars on, chose just 50 stocks that are perfect for the investing environment. They also chose JD.Com.
Between my call and theirs, JD.Com nearly doubled in price from $25 per share to $48 per share. Then it fell back toward its present level of about $38 per share, which is where Goldman recommended it. It came to the U.S. market a few months before Alibaba Group Holding Ltd. (NASDAQ:BABA) and has since paced it, nearly doubling in value.
JD.com Gets a Little Help from Its Friends
JD is the true Chinese equivalent of Amazon.Com Inc. (NASDAQ:AMZN) in the U.S., breaking bulk in giant warehouses and delivering merchandise to loyal customers. While based in Beijing, the holding company behind it is based in the Cayman Islands.
Unlike Amazon and Alibaba, which have relied on strong entrepreneurs to grow, JD.Com has relied on strong partners. Tencent Holdings Ltd. (OTCMKTS:TCEHY) handed its shopping operations to JD.Com in 2014, and added cash for a 15% stake. Wal-Mart Stores Inc. (NYSE:WMT) did something similar in 2016 and got 5%. While Americans went ga-ga over “Amazon Day” in July, JD had its own “JD-Walmart” festival in August.
The site looks more like a U.S. department store site than Amazon, filled with merchandise and assurances that you’re getting a good deal. Since 2013 it has been delivering to U.S. addresses, free on orders over $49.
Everyone Likes JD
If you want the stock and not the merchandise, remember that as with Amazon, you’re buying growth.
Remember to translate between Yuan and Dollars, and note that during this year we’ve gone from about 6.8 Yuan to the dollar to 6.4. That’s bad for the dollar, but good for your Chinese investments.
JD is due to release earnings November 14, before the market opens, with analysts expecting a break-even quarter on revenue of $12.25 billion. A year ago, based on the exchange rate of that time, sales for the same quarter were under $9 billion. Revenues nearly quadrupled between 2013 and 2016, and operating cash flow has been accelerating.
Analysts around the world are pounding the table for that Amazon-like growth. Of the 38 analysts currently following the stock, 29 have it on their buy lists, and that has been growing.
Our Will Ashworth is typical. He thinks JD.Com is a better buy than Alibaba. He notes that it has lower selling expenses in relation to sales than Alibaba, gets more bang for its research buck, and should start delivering positive earnings in 2019, at a lower price to earnings multiple than Alibaba.
The stock’s options are currently pricing in a nearly 9% move upward after earnings are announced next month, notes our Joseph Hargett. If it can get above its 50-day moving average — it’s stalled at present levels — the chart would be signaling buy, buy, buy.
Now may indeed be the time to buy, adds Bret Kenwell, with the stock having pulled back from all-time highs and waiting to be plucked like ripe fruit. With the dollar continuing to slide against the Chinese currency, this trade makes sense.
The Bottom Line
I have made out well putting my money on Amazon and Alibaba, and JD.Com is offering similar characteristics, with the company at an earlier stage of development. If you’re looking for a “bargain” in a Chinese Internet stock, you can’t do much better right now than JD.Com.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in BABA and AMZN.