When I last weighed in on JD.com (NYSE:JD) stock, I wrote “investors can take advantage of the excessive fear keeping investors at bay” and that, “perhaps it’s time to buy the blood in the streets.” That was on Oct. 22 and JD stock traded at $31 a share.
By Nov. 15, the shares exploded to a high of $35.43 before things fell apart. All thanks to a trade war resolution that never stood a chance.
For one, no “phase one” agreements were ever signed. Two, China was unwilling to bend unless the U.S. agreed to remove all existing trade tariffs. Granted, for some time, it appeared both sides were ready to end the never-ending trade war. Unfortunately, that’s not likely to happen until after the 2020 presidential election.
As we near the Dec. 15 deadline on 15% tariffs on Chinese goods, it seems there’s no deal in sight at all. “I have no deadline,” President Trump has said. “In some ways I think it’s better to wait for after the election, if you want to know the truth.”
Commerce Secretary Wilbur Ross also just days ago said Trump is “serious” when he talked about trade talks could last beyond the 2020 election. Worse, he said Trump would impose another round of tariffs on Chinese goods on Dec. 15 unless there was “some real reason to postpone them.”
In short, I’d avoid JD stock until there’s clarity. The trade war won’t be kind to shareholders.
Long-Term Story Still Intact
Near-term, JD stock should be avoided like the plague after breaking below its 50-day moving average. However, keep an eye on it around its 200-day moving average at $29.68 a share. Since May 2019, each time JD has tested its 200-day, it tends to bounce.
Fundamentally, JD still has a powerful long-term growth story.
The company again beat analyst estimates for quarterly revenue thanks to stronger e-commerce. Total net revenue jumped 28.7% to 134.8 billion CNY ($19.27 billion). It also forecast net revenue of between 163 billion CNY and 163.54 billion CNY.
“JD saw excellent results for the third quarter marked by accelerating revenue growth and record operating profit margin,” said Sidney Huang, JD.com’s CFO. “Customer growth also remained solid, reflecting our commitment to becoming China’s top source for quality products at everyday low prices, supported by world class operating efficiency. Looking forward, we will increasingly benefit from the economies of scale inherent in JD’s unique business model through our leading supply chain, technology and service capabilities.”
Annual active customer accounts also increased to 334.4 million over the last year from 321.3 million, leading Barclays analyst Gregory Zhao to upgrade JD stock from equal weight to overweight with a price target of $38 a share.
Better, Chinese consumers are still going strong, creating even further opportunity in JD.
The solid numbers from Chinese retailers show that China’s economy is not “falling off a cliff like I read in the media every day,” noted Brendan Ahern, CIO at KraneShares. And according to eMarketer, retail e-commerce sales in China are expected to increase from $1.5 trillion in 2018 to $2.9 trillion by 2021, and to $4.1 trillion by 2023, as I’ve noted.
Bottom Line on JD Stock
With the trade war taking the wind out of stock sails, JD stock looks bleak near-term. However, given its sizable revenue, margin, and user growth, coupled with strong consumer spending, the shares are a long-term winner.
Plus, it’s set to firmly capitalize, as e-commerce growth explodes to a $4.1 trillion by 2023. Near-term, avoid JD stock. Once the pressure is off, buy and hold long term.
As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.
