JD.com Is a Great Company, But Amazon Is the Better Bet

It's going to be difficult for a Chinese competitor to knock Amazon off stride

JD Stock JD.com Stock

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“As good a stock as Amazon (NASDAQ:AMZN) is, JD.com (NASDAQ:JD) could be better.”

That’s what I said about the Chinese e-commerce powerhouse in late January, suggesting JD stock could have more upside than Amazon given that it’s growing revenues faster than Amazon was at approximately the same time in their respective corporate histories.    

Trading above $50 at the time, JD stock has gone downhill ever since losing 28% of its value over the past six months, following the trend of most Chinese stocks, which are down 9% year-to-date through Aug. 3. Meanwhile, Amazon’s been on a tear, up 56% YTD.

What was I thinking? How could I possibly have thought JD stock had more upside than the world’s largest e-commerce company?

Do I Still Think JD Stock Has More Potential Than Amazon?

The short answer: No, I do not.

Outside of China, JD has made few inroads. If it wants to have a trillion-dollar market cap like Amazon — I expect AMZN stock to hit the high-water mark by the end of 2018 — it has to demonstrate its business will fly outside the domestic Chinese market.

InvestorPlace’s Luke Lango recently addressed the company’s expansion outside China.

“JD is aggressively expanding internationally, including a huge expansion into Europe. Clearly, the company isn’t satisfied with dominating the China e-commerce market — it wants a piece of the global e-commerce pie, too,” Lango wrote Jul. 24.

Lango continued, “Eventually, the China e-commerce market won’t be a hyper-growth market anymore. At that time, JD will be able to pull international levers to keep growth strong.”

I totally agree with Lango’s argument.

I’m just not sure JD’s expansion outside of China is going to add up to big profits now that Amazon seems to be on a roll generating a record second quarter profit of $2.5 billion, the highest bottom-line result in the company’s 23-year history. 

Now that Amazon is growing both the top and bottom lines, it’s going to difficult for any Chinese competitor to knock Jeff Bezos and company off stride.

Bottom Line on JD Stock

JD will continue to benefit from a strong Chinese market using those gains to fortify its domestic business while trying its hand in markets outside China, like Europe and elsewhere.

“The strong results across the board reflect that the Chinese market is embracing our model of a high-quality online shopping experience,” said Richard Liu, chairman and CEO of JD.com. “China’s increasingly discerning consumers are migrating en masse to our unwavering vision of online retail that prioritizes quality and user experience above all else.”

I don’t think JD shareholders need to worry about the company’s business. Overall, it’s very strong. Unless it delivers a dud of a quarterly report, the mid $30s appear to be an artificial floor.

My colleague believes JD stock should see $50 by the end of the year on its way to $76 over the next 48 months.

In this type of uncertain market with tariffs, trade wars, higher interest rates and higher gas prices, I’m not sure a 40% gain over the next four and a half months is realistic.

However, I wouldn’t be surprised if JD stock was trading over $50 by this time next summer.

JD is still a great company, but in my mind, Amazon is the better bet if you can only own one stock. At the beginning of 2018, I didn’t feel this way.

Boy, have times changed. 

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2018/08/jd-com-is-a-great-company-but-amazon-is-the-better-bet/.

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