JD.com (NASDAQ:JD) seems defined by the trade war. Despite its favorable growth prospects and its robust revenue growth amid the trade conflict, JD stock struggles to gain traction. The ups and downs of the ongoing tariff battle between the U.S. and China continue to hold sway, despite JD’s limited involvement in the U.S. Until traders begin to judge JD by its performance rather than external factors, JD.com will only be a buy at specific price points.
Warren Buffett’s mentor, Benjamin Graham, liked to describe the stock market as a voting machine in the short-term and a weighing machine in the long-run. The performance of JD stock seems to indicate that JD.com hasn’t gotten many votes. Some describe the shares as “ready for a breakout.” Others seem less optimistic due to the U.S-China trade war. My feelings lie somewhere in between. In many respects, JD has become a proxy for sentiment about the trade war.
While the dispute continues, the rhetoric from President Trump has become nicer. For this reason,JD is trading in a sort of “no man’s land.” JD.com has not fallen back to its midyear lows of around $26 per share. However, it cannot get past its 52-week high of $32.28, either.
JD Needs Movement. .of Some Kind
In my previous article on JD stock, I told readers to “wait for the next dip.” I more or less feel the same way now. But I think InvestorPlace feature writer James Brumley accurately stated that the 200-day moving average has become the new low point for JD.com.
I’m also inclined to agree that JD.com “needs a poke,” as Brumley said. That poke could come from an end to the trade war. Or perhaps traders will stop caring so much about the trade war because of the apparent resilience of the Chinese economy . However, if the trade war deteriorates (or there’s a negative tweetstorm from President Trump), JD will fall right back to the 200-day moving average.
I think that those considering buying JD stock should hope for such an event. If such a scenario plays out, I think JD.com will be worth buying. At that point, I believe Luke Lango’s prediction that JD stock will start to win will be correct.
Though it remains the second-place company in Chinese e-commerce, behind Alibaba (NYSE:BABA), JD does have the advantage of owning a logistics network like its U.S. counterpart, Amazon (NASDAQ:AMZN). JD also remains far ahead of the fast-growing but arguably overvalued upstart, Pinduoduo (NASDAQ:PDD).
That situation bodes well for those of you who follow the philosophy of former GE (NYSE:GE) CEO Jack Welch. Welch succeeded at GE in large part by buying the #1 or #2 company in an industry, and I think investors can earn profits by taking a similar approach.
Perhaps JD will break out at some point even without a trade resolution. The forward price-earnings (PE) ratio of JD stock now stands at 24.3. Although that’s close to the S&P 500’s average multiple, JD is growing much more quickly than the average company in the index. Analysts, on average, expect its profit to jump 157.1% this year and 34.4% in fiscal 2020. So its fundamentals should eventually take it higher.
The Bottom Line on JD.com
Although JD.com looks positioned for a breakout, it needs to escape its range before that can happen. JD stock trades at a reasonable valuation, and over time, its significant earnings growth should take it higher.
Unfortunately, the trade war continues to hamper the stock. Additionally, JD is trading in a range that places JD.com it in “no man’s land.”
Those who want to buy JD should wait for two developments. Specifically, they should wait for the shares to reach their 200-day moving average, the point I think JD stock will reach if trade negotiations hit a stumbling block. And they should wait for the shares to exceed $32. I think JD can break out if it breaches that ceiling.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.