With more than a 40% rise in their share price since the end of August,
JD.com (NASDAQ: JD) has proven itself to be one of the more resilient Chinese stocks this year, and as a result, among the most attractive. Pretty much the entire sector was hurting through this past summer, as a surprise increase in regulatory and antitrust actions by the Chinese authorities spooked investors big time.
Towards the end of July, JD shares found themselves down close to 45% from their all time high, set only in April, but there the selling stopped. They’ve since managed
to undo most of the damage and are in a strong position to still finish the year
at fresh highs providing there are no more regulatory surprises coming from the east.
Poor Peer Performance
This is in stark contrast to the likes of Alibaba (NYSE: BABA) whose shares hit a fresh multi-year low yesterday. They’re down a full 60% from last year’s all time high and back trading at 2017 levels. So what’s been going so well for the folks over at the other e-commerce powerhouse?
Well for starters, JD’s Q2 earnings report, released in August, provided a great deal of reassurance to investors that the ship was still heading in the right direction despite external pressures. Revenue was up nearly 40% on the year, with annual active customer accounts crossing 500 million for the first time too.
This solid report was followed up in the company’s Q3 earning, released last week, where they were again comfortably ahead of analyst expectations. Revenue for the quarter was up 25% compared to the same period last year, while non-GAAP EPS also came in better than expected. This was a nice surprise for investors to get as they’d have been forgiven for thinking the supply chain constraints which have dogged e-commerce businesses all year would have done some damage. But as Lei Xu, President of JD, summed up, “with resilient business operations and core competencies in technology and supply chain, JD has built a unique business model, enabling us to have better control across the entire business process.”
Additional tailwinds have appeared in recent weeks which have helped to drive a bid in JD’s stock that’s been sorely missing in some of their peers. For example, the news last week that JD is to be included on Hong Kong’s benchmark Hang Seng index did much to assuage investor’s concerns that China’s tech crackdown was going to make them too risky to touch. Earlier this month, JD reported a company record of $55 billion in Single Day sales, the equivalent of the West’s Black Friday.
Also this month, Barclays’ analyst Jiong Shao initiated coverage of JD with an Overweight rating and a $98 price target. With shares still trading below the $90 mark for now, that’s some appealing upside for those of us on the sidelines to be thinking about. In a note to clients, Shao wrote about how JD has “built a dominant e-commerce franchise with massive in-house logistics operations."
Getting Involved
These bullish comments echoed those from Bank of America who were out with a report on their top e-commerce picks in the middle of October, with JD the only Chinese name to make the list. Bank of America spoke to the company’s large growth potential based on room for a larger user base and more merchants using its online platform. Bank of America also said that it “expects JD to be less of a target for Chinese regulators who have recently cracked down on the business practices of many of the country's Internet companies.”
With all that in mind, it’s easy to see why JD shares have so easily outperformed those of Alibaba in recent weeks, and are set to continue doing so. While it’s fair to expect Alibaba to make some kind of a recovery in 2022, for now at least it looks like their shares want to fall a bit lower, and investors would do well to avoid catching a falling knife. With JD, you have a $150 billion company that’s growing revenue at double digit rates, and is being pipped as among the top e-commerce stocks to own globally for the coming year. There’s every reason to think JD will continue trending up into 2022.
Companies in This Article:
