Chinese e-commerce firm JD.Com, Inc. (ADR) (NYSE:JD) often takes a backseat to China’s biggest online retailer: Alibaba Group Holding Ltd (NYSE:BABA). As a result, JD stock is trading at a severe discount right now, making it a potentially solid bullish play.
Right now, JD stock is struggling with a comeback. JD shares have given back more than 35% since peaking near $50.50 in January. Threats of a trade war with the U.S. have not helped JD stock at all, and the company’s fourth-quarter earnings report did not live up to sky-high expectations.
However, JD.com’s first-quarter guidance of between $15.4 and $15.8 billion was still inline with analyst expectations. What’s more, trade-war fears between the U.S. and China are easing amid talks to stem the toxic rhetoric.
Finally, JD.com is exploring a plethora of deals to help it better compete with Alibaba. In fact, JD has teamed up with Chinese online portal leader Sina Corporation (NASDAQ:SINA) to provide users with more relevant content. JD.com has also partnered with Tencent Holdings Limited (OTCMKTS:TCEHY) to invest in a Chinese smart TV manufacturer.
JD.com is also making inroads with major U.S. retailers. Aside from it’s standing deal with Walmart Inc. (NYSE:WMT), JD is fast becoming a favorite among U.S. retailers due to Alibaba’s use of exclusive contracts — and its reported retaliation for those that choose to deal with competitors.
All of this makes JD stock worth a serious look for investors, especially with the shares trading near oversold levels right now.
With sentiment beginning to improve in the financial media, expect the brokerage community to emerge once again to defend their bullish outlook for JD. According to Thomson/First Call, 32 of the 37 analysts currently following JD stock rate its shares a “buy” or better. The 12-month consensus price target rests at $51.45. That leaves plenty of room to run before valuation becomes a concern.
Meanwhile, JD options traders remain concerned for the shares. Currently, the May put/call open interest ratio comes in at 0.91, with calls and puts in near parity. Overall, implieds are pricing in a potential move of about 6.5% for JD stock heading into expiration. This places the upper bound at $40, while the lower bound lies at $35.
Technically, the $40 should offer little resistance for JD stock. The shares have bounced around this region for the past several weeks, and a breakout could send the shares back into contention with their 200-day moving average. With support growing at $39, a drop to $35 appears unlikely but would signal a strong buy from JD investors.
2 Trades for JD Stock
Call Spread: Traders looking to take advantage of JD stock’s oversold status might want to consider a May $38/$39 bull call spread. At last check, this spread was offered at 23 cents, or $23 per pair of contracts. Breakeven lies at $38.23, while a maximum profit of 77 cents, or $77 per pair of contracts — a potential return of 2234% — is possible if JD stock closes at or above $39 when May options expire.
Puts Sell: If geopolitical concerns are weighing on your outlook, then a more neutral-to-bullish strategy might work better for your risk tolerance. Along those lines, a May $35 put sell is a good starting place. At last check, this put was bid at 62 cents, or $62 per contract.
As long as JD stock trades above $35 through expiration, traders pursuing this strategy will keep the $62 premium. However, if JD trades below $35 ahead of expiration, you could be assigned 100 shares for each contract sold at a price of $35 per share.
As of this writing, Joseph Hargett did not hold a position in any of the aforementioned securities.