When it comes to leading Chinese online retailer JD.Com Inc (NASDAQ:JD), it is important to know about its recent price history. 2018 was a brutal year for the company. With the scandal involving its CEO, Liu Qiangdong, concerns about heavy capital expenditures, and an end-of-year selloff in equities, JD stock finished the year down around 50%. The massive advance of JD stock price that occurred in 2017 did not hold.

Although 2019 has been mixed for Chinese equities in general, meaningful improvements across multiple metrics have lifted JD stock higher. So far this year, JD stock is up 39% even after a lot of choppiness last month due to the intensification of the U.S.-China trade conflict.

But in June, the outlook of JD stock appears to be much brighter.

As both China and the U.S. take strides toward inking a trade deal, funds have been investing more money in Chinese equities . With this change in investors’ attitudes, JD stock price, which is currently very undervalued, has a chance to gain some momentum.

The Real Thesis on JD Stock

In many ways, the China retail story has not changed. Whether a trade deal goes through or not or whether tariffs are levied on a hundred categories of goods or three hundred actually does not impact JD in the way that some may think.

JD.com stock is primarily a play on the domestic Chinese retail boom and, by proxy, on the increasingly wealthy Chinese consumer. These underlying long-term trends are still at work, regardless of what President Donald Trump tweets. It can be argued that tariffs will impact Chinese businesses and thus, the wealth of China’s populace, but the positive, fundamental dynamics of the Chinese retail industry will continue to enhance JD’s strength, boosting JD stock.

JD’s Metrics Are on Fire

JD’s quarterly active customer accounts are up 15% year-over-year. Gross merchandise volume (GMV) continues to rise dramatically; the compound annual growth rate (CAGR) of the company’s GMV  from 2012-2018 is an incredible 64%. For the same period, its net revenue has grown at a CAGR of 50%.

That kind of sustained growth is hard to find, but JD is delivering it.

From 2015-2018, JD’s net revenue CAGR was a more moderate 37%, but other Chinese retailers have delivered much lower CAGR. During the same period, Sunning’s CAGR was 25%, vip.com was the closest  to JD at 28%, but JD is clearly leading the pack. Even Amazon.com, Inc. (NASDAQ:AMZN), came in below JD with a 30% CAGR over that three-year period, although it should be noted that AMZN is a much larger company.

JD continues to invest in logistics infrastructure, which, as time passes, increasingly resembles a moat against current and potential competitors. The company now has over 550 warehouses and over 12 million square meters of gross floor area.

Carrying out fulfillment in a large geographic area poses unique challenges. In dealing with these hurdles, JD has taken the unpopular approach of making high upfront investments. The approach is similar to that of AMZN, which is now opening up its own airport hubs to further improve its delivery capabilities. But the strategy has worked extremely well for AMZN, its customers, and its shareholders. There is a very good chance that the owners of JD stock will also benefit tremendously from the approach.

The Bottom Line on JD Stock

In any conversation about the Chinese retail sector, Alibaba (NYSE:BABA) comes up in the same breath as JD. I am still a big fan of BABA, but the  risk-reward ratio of JD.com stock is more attractive at the moment because it generates incredible growth that has a lot of room to accelerate.

I fully expect it to continue to maintain its leadership position in Chinese retail,As the trade overhang lifts, JD stock will benefit from a more risk-on attitude towards China-focused equities.

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