Shares of JD.Com Inc (ADR) (NASDAQ:JD) are hovering in a very precarious spot, right on a vital level of support. Bulls have several reasons to be worried, the first of which is the fact that JD.com is a Chinese e-commerce company.
While this would typically be a catalyst to the bull case, the recent trade-war drama between the U.S. and China has put a number of stock on the decline — whether it’s warranted or not.
With that in mind, what do we do with JD.com stock? Let’s look at vital support first.
Trading JD.com Stock
Now below all three major moving averages, it’s clear bears have been in control of JD.com stock. It shows that bulls have completely lost their momentum after a nice rally to fresh all-time highs to start off 2018. The question now is, can they prevent the bears from scoring another touchdown?
On the chart above, you can see the vital support level that sits at roughly $36. JD stock gapped above this level back in May 2017 and tested it several times in the fall. Each test led to a notable rally, but there are question marks about its durability this time around. On Wednesday, shares opened below this mark and were able to rally back to it (approximately) by the close.
Still, it doesn’t inspire much confidence.
What bulls need to see now is a powerful move off this level. A move back to $38 and above would be a good start. From there, a rally back toward its major moving averages would inspire more confidence, as all three currently sit around $42. Should JD stock price get that kind of rally, it would represent an advance of almost 17%.
Remember, though, it’s all about going one step at a time. First bulls need to see if $36 will hold. I wouldn’t buy JD stock until I felt confident that was the case.
As it is with other trades — like General Electric Company (NYSE:GE), for instance — I’d rather miss the bottom and buy with momentum than try to time the bottom and get burned. If $36 holds, bulls have a low-risk buying opportunity and can use a close below that level as their stop loss.
Valuing JD Stock
Based on the health of the global economy and growth in e-commerce, many investors are expecting JD to continue doing well. In China, it’s going even better, as first quarter GDP growth came in at almost 7%. Do you know what the U.S. would give for that kind of growth?
The simple truth is that China continues to churn out incredibly strong growth amid a robust population base. That bodes well for internet companies like Baidu Inc (ADR) (NASDAQ:BIDU), Alibaba Group Holding Ltd (NYSE:BABA) and, yes, JD.com.
Since October, there have been 12 analyst price target assignments. The lowest target sits up at $44, implying about 22% upside. The highest target on Wall Street comes from Stifel Nicolaus on Mar. 2. It’s up at $55 per share and implies more than 50% upside from current levels. That’s also about 10% above JD’s 52-week highs.
For the record, the average price target is about $50, just under those highs and about 40% higher than today’s prices.
Can it get there? I don’t want to be unrealistic and say a 40% rally is in the cards. But revenue is forecast to grow 30% this year and 25% next year. Analysts expect earnings to grow 46% in 2018 and 72% in 2019. For this, we’re paying just 26 times next year’s earnings.
It’s not a screaming buy based on the valuation, but it has impressive growth. If the charts work out, bulls should pull the trigger.