Does it make sense to buy shares of a company whose stock plummeted more than 60% last year? How about a stock that surged 6% in July, only to lose it all and more before the end of the month? These are questions that the owners of JD.com (NASDAQ:JD) stock are facing today.
I’m not expecting JD.com stock to reclaim the dizzying heights of January 2018, when the shares were trading in the $50 range. I’m just making the case that the JD stock price should make a nice comeback in the near future; I won’t predict an exact time frame for the rebound, but JD stock price will rise, in my humble opinion.
Dark Days for JD.com Stock
Long-standing owners of JD stock don’t like to discuss the past, and there’s a good reason for that: in August of last year, JD.com CEO and founder Richard Liu was accused of committing a terrible crime against a 21-year-old (I won’t go into details, but feel free to look up the unfortunate information if you’re so inclined). Charges were never pressed against Liu, but the scandal left the owners of JD.com stock shaken and skittish.
That was a main driver of JD stock’s fall from grace, but the company has worked hard to rebuild its standing, and while it’s not likely to become an $1,800 stock like Amazon (NASDAQ:AMZN), a cheapskate investor like me is much happier to buy up JD shares at $30 than at $50. I intend to hold JD stock until it at least breaks through its stubborn resistance level in the mid-30’s.
Earnings Could Drive the JD Stock Price Higher
The next JD.com quarterly earnings announcement is scheduled for August 15, and this event could be precisely the catalyst that bullish investors have been waiting for. It seems that the bar has been set rather low for JD stock, as analysts, on average, expect the company to report EPS of only 5 cents.
Looking through the historical data, I suppose that this pessimism is understandable; after all, JD’s actual EPS for the same quarter a year earlier was a heartbreaking -23 cents. That’s the type of setup that I like to see come earnings time, though: an easy hurdle to clear with bearish sentiment already factored in and plenty of room for better-than-expected results.
China’s Recovery Could Be JD.com’s Savior
Numerous sectors have remained under pressure as the U.S.-China trade war drags on month after month, and JD stock price is reflective of investors’ concerns about these international tensions. In spite of these headwinds, retail sales in China increased 8.4% year-over-year during the first half of 2019.
Not only that, but the pace of the country’s retail sales growth may actually be accelerating, rising 9.8% year-over-year in June, after an already encouraging 8.6% year-over-year increase in May. The macro environment won’t be sufficient by itself to lift JD.com stock to $50 or even $40, but the retail sales acceleration is indicative of a favorable backdrop in which the company can flourish even amid a protracted trade war. And of course, if the tariff war is resolved in the near future, JD stock price is likely to be boosted, and JD stock may even return to its previous high-water mark.
The Bottom Line on JD Stock
With China’s economy surviving and perhaps even thriving despite political and economic tensions, a position in JD stock is a bet on the eventual easing of those tensions, as well as on China’s resilience during the toughest of times. Détente or no détente, I’m looking forward to a time when investors can forgive and forget JD.com’s no-good, awful, terrible year and focus on its new horizons in the international, interconnected e-commerce market.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.