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After pulling back from a record high, JD stock has set up as a buy

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Shares of JD.Com Inc(ADR) (NASDAQ:JD) are up big on the year, climbing 56% so far in 2017. But it hasn’t been easy sledding this summer. After tagging a record $49 in early August, JD stock is now down about 17%. Time to wave the white flag or back up the truck?

I wouldn’t say JD stock is a “back up the truck” kind of name. But I certainly wouldn’t wave the white flag, either. In fact, I would be more interested in dipping my toe in the water here. While listed on the Nasdaq, is a Chinese company based in Beijing. Its e-commerce business sells everything from food and baby books to home appliances and electronics.

Basically, is a smaller, less-conglomerate version of, Inc. (NASDAQ:AMZN). The Chinese online shopping space is attractive. While e-commerce disruption is earthquaking its way through the U.S., China has three times the population and a fewer bricks-and-mortar stores. In other words, e-commerce has a ton of room to expand.

On an earnings basis, is profitable through the first half of fiscal 2017. On a net income basis, not quite, but it’s getting there. I will be the first to admit that on a fundamental basis, JD stock is not a screaming buy.

Sizing Up

On the surface is a good company, but not necessarily an amazingly great one. That’s okay, though.

Some of the not-great features? JD’s cash position is down about 23% year-over-year (YOY), while its total debt is up 27.5% YOY. Additionally, cash flow from financing is climbing. This would be more concerning if not for some of the more positive developments. Mainly, that JD’s cash and debt levels are similar, while the latter is quite manageable. Further, total assets have increased significantly YOY, and its debt-to-assets ratio is declining. Additionally, free-cash flow and operating cash flow are both moving higher, which means can either pay down debt or further invest in its operations to grow its market share.

When it comes to sales and earnings, the numbers for are impressive too. Analysts expect sales to grow 39.4% this year and 28.5% in fiscal 2018. Forecasts call for earnings per share of 45 cents this year, roughly three times 2016’s results. However, analysts expect another 89% growth in 2018.

That’s why JD stock trades with an egregious trailing price-to-earnings (P/E) ratio while at “just” 45 times forward earnings estimates. Fitting with’s overall theme, this valuation is good, but not knock-your-socks-off great. It’s definitely not cheap, but for a company with robust revenue growth and a commitment to grow both earnings and cash flow, the valuation can be justified.

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