Why You Should Buy JD.Com Inc(ADR) Stock Immediately!

Advertisement

Shares of JD.com Inc(ADR) (NASDAQ:JD) have settled down after a big run. The JD stock price rose 150% between June 2016 and early August. Since then, however, JD stock has pulled back, hitting a five-month low in October before a recent rebound.

Why You Should Buy JD.Com Inc(ADR) Stock Immediately!

The recent weakness seems mostly unexplained. JD.com news remains positive; second quarter earnings were impressive — yet JD stock sold off anyhow.

Meanwhile, other Chinese tech stocks are doing well. Weibo Corp (ADR) (NASDAQ:WB) is at an all-time high. Alibaba Group Holding Ltd (NYSE:BABA) and NetEase Inc (ADR) (NASDAQ:NTES) aren’t far off.

I argued last month that the pullback was an opportunity — and I still think that’s the case, particularly ahead of JD’s Q3 earnings report next week. JD stock isn’t cheap (or even close to being cheap), but it has tremendous growth potential. And I expect the Q3 numbers will remind the market of that potential.

JD.com News Looks Good

JD.com stock doesn’t get nearly the amount of coverage that Alibaba does — and the company doesn’t have nearly the same amount of market share. But JD.com is closing the gap, as Luce Emerson detailed in August. And recent moves position the company to continue that trend.

JD.com is partnering with Wal-Mart Stores Inc (NYSE:WMT) in China, combining membership systems and sharing fulfillment processes. A deal with Tencent Holdings Ltd (OTCMKTS:TCHEY) uses data from Tencent’s WeChat app and artificial intelligence to improve marketing.

The Chinese market looks like the most attractive in the world from a long-term growth standpoint. And it’s basically a two-horse race. Amazon.com, Inc. (NASDAQ:AMZN) appears willing to cede the market to Alibaba and JD.com. Alibaba will be tough competition, but JD.com already is gaining ground. If that continues, JD.com will be taking share in a fast-growing market — and that bodes well for the JD stock price.

Buy JD Stock Ahead of Earnings

Again, JD stock isn’t cheap and, last week, James Brumley highlighted some near-term technical weakness in the stock. JD stock trades at about 45 times 2018 earnings per share estimates backing out its net cash; BABA is valued at a much cheaper 27x.

But JD.com is growing much faster: estimates suggest ~90% EPS growth next year, against 39% for Alibaba. That’s growth worth paying for, even at a high multiple. I’m betting Q3 results will remind investors of this fact. JD.com is expected to post a sharp increase in EPS, and 38% revenue growth, but those estimates look potentially light.

Q3 2016 provides a relatively easy comparison: top-line growth was just 31% last year. Since then, revenue has increased at least 41% in each of the last three quarters — with JD.com blowing past estimates each time.

If trends hold, I’d expect another beat from JD.com. And, this time, a beat should send the JD stock price higher.

Risk and Reward

Again, there are risks here. Questions still surround the Chinese economy, on which JD.com is solely reliant. Valuation, as noted, is high. JD.com is going to have to grow for years to justify that multiple. But there’s plenty of reason to think it will.

JD.com is #2 in one of the world’s best markets. It’s taking share in that market. It may not catch Alibaba, but its valuation is roughly one-ninth that of its larger rival.

That’s too low, given JD’s strong and growing market share. There are risks here — but the rewards are bigger. Q3 earnings should make that point clear.

As of this writing, Vince Martin has no positions in any securities mentioned.

After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.

 


Article printed from InvestorPlace Media, https://investorplace.com/2017/11/buy-jd-com-inc-adr-stock-immediately/.

©2024 InvestorPlace Media, LLC