After handily beating estimates for its second-quarter earnings, JD.com (NASDAQ:JD) recently fell to its pre-earnings level after another tantrum from President Donald Trump. The president has been jawboning down the value of Chinese stocks, costing them about $1 trillion in market cap. His latest escalation, a threat to delist all Chinese stocks on U.S. markets, could be offering JD.com investors a bargain.
That’s because a tweet alone won’t do the job — and even an executive order would be fought for months in courts. A U.S. exchange can only remove a company for violating exchange rules, like failing to pay exchange fees or fraudulent filings. Such actions would start with the privately owned exchanges, not the government. They would have global repercussions.
The bottom line is delisting would take time, it would do tremendous damage to Wall Street and it’s unlikely to happen if Trump isn’t re-elected.
JD Stock’s Fundamentals
It makes much more sense to value JD.com based on its fundamentals. Those fundamentals look pretty good.
For the June quarter, JD.com reported a profit of about $500 million on revenue of over $21 billion. Management is projecting profits of $1.4 billion for the full fiscal year, since last September’s print revenue is up about 50%. Over the last four quarters revenues have hit about $73 billion, almost 511 billion yuan. JD’s market cap is $41.3 billion.
By way of comparison, Costco (NASDAQ:COST) is worth $120 billion on revenue of $150 billion. Walmart (NYSE:WMT) is worth $334 billion on revenue of $518 billion. Neither has anything like JD’s growth rate.
That growth may fall in the next few quarters. JD.com had anniversary promotions during June. But it is adding luxury goods makers to its marketplace and expanding its global footprint. It’s also investing in cloud data centers, like Amazon (NASDAQ:AMZN) and expanding throughout Asia.
Walmart — an investor in JD.com — is benefiting from its growth. So is Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL). Neither would be happy to take losses on those investments.
What attracts these companies is less JD’s growth than its technology. It seeks to replicate and even improve upon what Amazon does in logistics. The company can handle next-day deliveries throughout China, where paved roads still don’t reach every small village. It’s also well ahead of Amazon in deploying drones, even for perishables like live crabs. Such deliveries have even been tested in Indonesia.
Past Scandals
Shares were hit hard by a scandal involving CEO Richard Liu, who was accused of rape while completing his business doctorate at the University of Minnesota last year. Prosecutors eventually chose not to file charges, fearing they couldn’t be proven beyond a reasonable doubt.
The current geopolitical threat seems likely to fade as well, despite rising anti-China rhetoric among some market observers. China doesn’t allow audits of securities listed in the U.S., but most are technically based in the Cayman Islands, complicating any delisting efforts. The trade war was reported in May to have already cost investors $5 trillion.
The Bottom Line on JD.com
Trade wars are unhealthy for portfolios. The current trade war has already hit growth in China hard and is threatening a recession for the U.S. next year. Presidencies can’t survive recessions, especially when the cause can be pinpointed directly to the president’s Twitter (NYSE:TWTR) account.
JD.com is selling for less than Amazon relative to its growth rate and even its retail revenues. Its technology for package delivery may be superior. It will be tough to beat as next-day delivery continues to expand around the world.
Speculative investors should be buying it with both hands.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental story, Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
