When it comes to investing, my focus is generally on the fundamentals. But sometimes the charts are just too obvious to ignore.
This is the case with JD.com (NASDAQ:JD) stock. A glance at the chart shows that there is stubborn resistance between $30 and $31. This has been the case since early March.
Now there should be a breakout — whether on the upside or downside — right? I think so. And my guess is that it will be on the upside.
It’s encouraging that the company has been able to overcome some of its challenges, particularly with CEO Richard Liu. Keep in mind that he had been the source of much drama. During a trip to Minnesota, he was accused of rape. Although prosecutors did not press sexual assault charges on Liu, he was later accused in an April 2019 civil lawsuit. He had also called some of his employees “slackers.” This was in response to the emerging discontent in China with long work hours (known as “996,” which refers to a six day work week that has a daily schedule of 9 a.m. to 9 p.m.).
But the good news is that Liu has been able to keep a low profile lately. And let’s hope this continues.
The Pros and Cons
I know there is a lingering issue: the U.S.-China trade war. This is certainly creating lots of uncertainty and weighing on growth.
Yet the irony is that the situation may ultimately benefit JD.com. After all, the company is mostly focused on China’s domestic economy. So as the government continues to juice up the stimulus, this should help with consumer demand.
Another key is that — even with the falloff in trade — the Chinese economy is still growing at a rapid clip of about 6% annually. Oh, and there are some other driving forces like these:
- The middle class is forecasted to hit 600 million by 2022.
- About 90% of the growth in gross domestic product is coming from domestic consumption.
- By 2021, the e-commerce market is expected to go from $470 billion to $840 billion.
The JD.Com Strategy
Now JD.com faces intense competition. Its rivals are not just large players like Alibaba (NYSE:BABA) and Pinduoduo (NASDAQ:PDD). There are also an increasing number of fast-growing startups.
Despite all this, JD.com has some important advantages. For example, the company has built a sophisticated supply chain and logistics infrastructure that allows for quick shipping. It’s straight from the playbook of Amazon (NASDAQ:AMZN). Note that JD.com has major fulfillment centers in seven cities and about 600 warehouses. It also has geographic coverage in nearly all counties and districts in China.
Next, JD.com has been smart to pursue an aggressive partnership strategy, which has helped leverage growth. It has a deal with Tencent (OTCMKTS:TCEHY) that boosted digital distribution, as well as a strategic investment from Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). JD.com has also entered a deal with Walmart (NYSE:WMT) that has provided much more brick-and-mortar coverage.
The Bottom Line on JD Stock
No doubt, JD.com has been very busy. And the latest quarterly report shows that its investments are starting to pay off. Revenues jumped by 23% to $21.9 billion, with strength in the categories of home appliances, electric devices and general merchandise. As for annual active customer accounts, there was an increase of 3.5% to 321.3 million. There was also an improvement in margins as the company continues to benefit from disciplined cost management and scale.
These results, though, are probably not a one-off. Given the company’s strengths, it does look like the growth momentum should continue. And yes, this should go a long way in helping JD.com stock break out of its range.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
