China, the epicenter of the coronavirus outbreak, may already be getting back to normal. JD.com (NASDAQ:JD) stock, considered the country’s second-leading e-commerce merchant after Alibaba (NYSE:BABA), closed March 12 higher than where it started the year.
The gains in JD stock have continued in U.S. trade as well. The company’s market cap is over $56 billion on a sales growth rate of 25%. For the year it generated free cash flow of $2.8 billion.
JD’s Christmas quarter, announced early in March, dazzled investors, with net income of $116 million, 8 cents per share, and revenue of $24.5 billion. The company now has 362 million customers, 70% of them from smaller cities.
Is China Back?
China is already sending doctors to countries like Iran, Italy and Pakistan, where caseloads are increasing. China’s leading expert on the virus says the global outbreak could be over by June if proper measures are taken.
There have been over 80,000 cases of the coronavirus in China, by the government’s estimate, and over 62,000 have already recovered. The government is signaling that the worst is over there.
If that’s the case, the Chinese economy, and JD, could see even faster growth. The company is due to report its March quarter on June 1, with a loss of 13 cents per share expected on revenue of $19.21 billion. That would represent growth of 11.6% over last year’s first quarter.
Some analysts are beginning to call JD undervalued, pointing to its growth rate and higher margins. By all reports JD.Com is also stable at the top, having already announced a successor for its retiring CFO, Sidney Huang.
Is JD An Outlier?
If JD and other Chinese companies are already seeing growth after the virus, it could mean the outbreak won’t take the toll on global growth analysts had feared.
During the worst of the outbreak, JD switched from delivering luxury goods to staples in the impacted areas, creating 35,000 new jobs in the process. CEO Liu Qiangdong, also known as Richard Liu, used his experience running the company during the 2003 SARS epidemic to prepare JD for the coronavirus.
InvestorPlace contributor Larry Ramer recently called JD a better pick than Alibaba. He writes the company keeps beating expectations. He suggested the drones and robots of its logistics unit are proving more successful during the outbreak than Alibaba’s outsourced delivery. He expects growth to accelerate and market share to increase as the year goes on.
Long-term investors are also starting to like JD because of its logistics network. Pinduoduo (NASDAQ:PDD), once considered a major low-cost rival to JD, is now seeing decelerating growth and is burning cash. Its most recent quarter missed estimates, even as it ramped up promotions and subsidies.
The Bottom Line on JD Stock
It may be that JD is an outlier, one of the few Chinese companies that are succeeding despite the coronavirus.
It also may be true that the threat from this virus is overestimated. Wuhan has 11 million people, the Hubei province has 58 million, but China has only reported 90,000 cases of coronavirus.
I wouldn’t buy JD stock here because, if these estimates are accurate, the rest of the market is dirt cheap and offers an unparalleled buying opportunity. But the company’s results represent good news. With millions of Americans in panic mode, with so much about the coronavirus unknown, the success of JD in getting through what looks like the worst of the outbreak should at least be reassuring.
Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in BABA.
