In the pantheon of e-commerce stocks, it often feels like there are the two “A’s”: Amazon (NASDAQ:AMZN) and Alibaba (NYSE:BABA). While Amazon and Alibaba dominate the online shopping landscape due to their dominant perches in the U.S. and China, the world’s two biggest economies, there are plenty of other players in the e-commerce space.
Some of those companies include credible, large-cap names such as China’s JD.com (NASDAQ:JD). In many ways, JD.com is the classic e-commerce company as American investors have come to know the concept. It is just a Chinese version.
JD sells all sorts of things: electronics, personal care items, pet products, clothing, accessories, sports gear, fitness equipment, cars and a host of other goods that Americans usually find on Amazon, eBay and others.
Like Amazon and Alibaba, JD.com operates across multiple business lines, but JD is not quite as sprawling as the other two companies. Its core competencies are JD Retail and a unit known as New Business.
Fun Fundamental Facts About JD
In the lexicon of Chinese growth stocks, there are plenty of pretenders. Fortunately, JD.com stock is not one of those offenders. JD has market value of nearly $45 billion. Said another way, the Chinese company is about $11 billion larger than eBay (NASDAQ:EBAY).
In Amazon-esque fashion, JD operates several fulfillment centers across China and has more than 550 warehouses. Logistics is a significant piece of the e-commerce puzzle, one operators in the space know they cannot live without. Amazon knows this and has a sprawling logistics enterprise of its own, though it still has relationships with traditional cargo companies.
JD appears to be taking cues from AMZN on the logistics front.
Last month, JD said its “logistics division has raised a 1.5 billion yuan ($218 million) fund to invest in companies and technologies specializing in logistics,” according to Reuters.
Up more than 40% year-to-date, JD.com stock acts like, and is, a growth stock. Trading at nearly 53x forward earnings, it is clear JD.com stock’s multiples confirm the name’s growth stock status.
“We expect that management will reinvest the cash flow from the first quarter in the second and fourth quarters’ promotion seasons, which could lead to a full-year margin expansion lower than the first quarter,” said Morningstar in a recent note. “Strong second-quarter revenue guidance implies year-over-year growth of 19%-23%, driven by strong sales in April, a lower comparison in June 2018 due to a long holiday weekend and the World Cup, and more resources from the strong first quarter to reinvest in the second quarter.”
Morningstar has a fair value estimate of $36 on JD.com stock, slightly above the Wall Street consensus target of $34. The shares closed at $30.66 on July 22, indicating either modest upside from here or that a host of upward price target revisions are coming.
Bottom Line: Paying For Growth
Based on forward price-to-earnings ratios, JD stock is about twice as expensive as Alibaba, but investors may do well to not make this an apple-to-apples comparison. While the two are the two largest online retailers in China, JD.com is looking to enter the traditional brick-and-mortar space. While Chinese consumers are also increasingly shopping online, JD views this as a necessity. In fact, JD is opening 5,000 franchised stores around China.
While JD is richly valued, it is worth noting that broadly speaking, Chinese consumer discretionary stocks are not. The MSCI China Consumer Discretionary 10/50 Index has a 2019 estimated price-to-earnings ratio of just over 20x while the U.S.-focused Consumer Discretionary Select Sector Index has P/E of almost 21.
As of this writing, Todd Shriber does not own any of the aforementioned securities.
