There’s no denying it. The past few weeks have been particularly tough ones for JD.com (NASDAQ:JD) and its shareholders. JD stock is off 44% from its June peak, with the latest bit of that selloff driven by allegations that CEO Liu Qiangdong, also known as Richard Liu, sexually assaulted a woman in Minneapolis less than a month ago. True or not, that allegation has underscored another uncomfortable reality for JD: Liu has no clear successor.
There are limits though, and while many Chinese stocks — and the country’s internet stocks in particular — have been under heavy fire of late, JD.com stock may be near if not at a major bottom. This may be one of those falling knifes worth trying to catch.
One and the Same?
For the unfamiliar, JD.com is akin to U.S.-based e-commerce giant Amazon.com (NASDAQ:AMZN) and its Chinese counterpart Alibaba (NYSE:BABA). That is, though JD stock is categorized as an e-commerce name, it operates many ventures, all in an effort to build its own ecosystem of customers. Though it’s got a respectable presence, it plays a (distant) second fiddle to Alibaba in its home market.
The smaller size isn’t what’s haunted JD stockholders of late though; most investors recognize all things are relative.
Rather, the reason the accusations against Liu are so troubling is simply that the CEO is so integral to the company, that he’s often regarded as the company. As one JD,com employee explained shortly after Liu’s arrest: “To remove your top executive is to cut the head off the snake.” Meaning: If he, for any reason, can’t continue on as CEO, JD.com may not remain the company it is as of today.
That’s the assumption anyway. The reality may not be quite so dire, translating into opportunity for forward-thinking investors.
Nobody is Irreplaceable
Ever heard the adage “The graveyards are full of indispensable men”? The cliche makes the clearly accurate point that the world is surviving just fine without people who, at one point, we thought that we couldn’t do without.
And it’s not as if we haven’t seen the same idea within the business world. The late, great former Apple (NASDAQ:AAPL) founder and CEO Steve Jobs was deemed irreplaceable, but current CEO Tim Cook seems to have filled those big shoes quite nicely.
The same reality applies to JD and Liu Qiangdong. It may seem like the company’s survival is dependent on his presence. But, when someone has to, the right leader emerges.
The company’s certainly on the right path, fiscally speaking. Revenue has been rising, and is projected to keep doing so. Ditto for the company’s bottom line. If nothing else, JD.com could simply continue to get better at the things it’s already doing and do quite well for itself.
Its ventures go beyond e-commerce, too. JD is dabbling in everything from AI to logistics to virtual reality.
Clearly the strategy is bearing fruit, and given that China’s e-commerce industry is projected to grow from this year’s expected $1.1 trillion to $1.8 trillion by 2022 as more of the 62% of its population that doesn’t yet shop online starts to do so, JD is positioned right where it wants to be.
Bottom Line for JD Stock
Admittedly, it takes guts to wade into a seemingly troubled pick like JD stock at this time. The headlines are concerning, at best, and ugly at worst. And, fair or not, presumption and rhetoric have hijacked the stock. It’s not been about value, current or prospective, in a long while.
That pendulum may be close to swinging the other way again though, pushing the entire scenario back to one that’s based on some semblance of reality. And, that reality — with or without Liu around — is a compelling one.
A guarantee? No. Those don’t exist in this game. From an odds-making perspective though, the selling effort since the January peak looks and feels like it’s run its full course. The weekly chart of JD.com stock is decidedly oversold, and on that same weekly chart the closes have been above the opens for since early September, suggesting some would-be buyers are starting to test the waters.
On the daily chart, a handful of the recent winning days have unfurled on higher volume.
Putting it all together, what you’ve got is a stock at least worth taking a shot on. It may not feel comfortable, but sometimes you have to just hold your nose and dive into the water.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.