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Could JD.com Become the Next Internet Winner?

June 25, 2018 / By /
Stock (Symbol)

JD.COM (JD)
Stock Price

$41
Sector
Retail & Travel
Data is as of
May 14, 2017
Expected to Report
Aug 8
Company Description
JD.com, Inc. is an online direct sales company. The Company engages in the sale of electronics and home appliance products and general merchandise products (including audio, video products and books) sourced from manufacturers, distributors and publishers in China on the Internet through its Website, www.jd.com. It also offers an online marketplace that enables third-party sellers to sell their products to customers on the Company’s Website. Source: Thomson Financial
Sharek’s Take
David SharekJD.com (JD) is a China’s largest online retailer and its biggest overall retailer. And its biggest Internet company by sales. JD’s nationwide fulfillment network does same-day and next-day delivery to a population of 600 million people. It sells goods online from manufacturers, distributors and third-party sellers — just like Amazon does. In fact, from what I can tell JD is a closer resemblance to Amazon than Alibaba is. Within China JD has 7 fulfilment centers, 263 warehouses and 67,000 full-time delivery employees. JD is around 1/5th of the size of Alibaba, 1/8th the size of Amazon. Here’s some highlights from last qtr’s results:

  • Profit of $0.15 vs. -$0.01 a year ago, beats analysts estimates of $0.01.
  • Next qtr’s profit estimate is $0.08 vs. $0.04 a year ago. This is important because another big beat would mean more than 100% profit growth.
  • Revenue up 47%, with services revenue up 91%.
  • Gross margin of 14%, up from 12% a year ago.
  • Non-GAP net margin rose to a record high 1.9%.
  • Active accounts up 40%.
  • 477 million orders fulfilled, up from 341 million a year ago (+40%).
  • Gross merchandise volume up 42%.

JD popped after last qtr’s amazing beat. But analysts weren’t so sold on the stock, with the main argument being they don’t think JD can get margins high enough to justify the stock price. I think the analysts are wrong. JD is expanding overseas like Alibaba is, and by the end of 2017 plans to invest in Thailand, and use it to expand into Malaysia and Vietnam. This surprise profit could be the beginning of something big here. But the stock ran up before earnings and has doubled in less than a year, so it could be in for a meaningful correction if the stock market turns down The P/E is a lofty 127, but profits are expected to climb from $0.11 last year to $0.32 this year, $0.74 in 2018 and $1.30 in 2019. With that kind of growth, I don’t mind the high P/E, especially considering the Estimated Long-Term Growth rate is 132% per year. And, there was that big earnings beat, so that might happen again. JD is high, but I think it’s a great growth stock with huge potential. And when you find a stock like this you often have to buy it or regret you didn’t if it follows an Amazon-like path. JD.com will be added to the Growth Portfolio. 
One Year Chart
JD broke out on high volume on January 24th at $27 after Alibaba jumped on great earnings. What’s strange is it seems JD rose in anticipation of these great earnings, then jumped from $36 to $41. Could someone have foretold last qtr’s success? The qtrly profit growth percentages (bottom/left) have been great because the company wasn’t making much last year. Estimates are for 100%, 200%, 50% and 33% profit growth the next 4 qtrs, so that triple-digit growth looks to continue. Although JD just beat the street, it merely hit estimates 2qtrs ago, but whipped estimates three and four qtrs ago.
Fair Value

My Fair Value on JD is 75x earnings. And that’s where I think we lost the analysts love — they have been trained professionally to go by valuations. But valuations are the reason you missed out on a lot of those great growth stocks. But I think this $56 Fair Value for next year looks about right.
Bottom Line
JD.com just broke out, and looks extended on the one-year chart. But on the ten-year chart it just broke out of a long base the stock’s been in since its IPO. That’s good. The longer the base sometimes means the bigger the move higher. Also, JD’s settled down a bit since this chart was made around a month ago. It could be preparing for another move. Overall I feel JD has amazing potential, but I’m leery about going in head first because if the stock doesn’t beat by a big margin this qtr it could be in for some profit taking. I also feel there’s some smart money out there that can predict this stock’s direction pretty well. JD will rank 20th in the Growth Portfolio Power Rankings, but misses the cut on the Aggressive Growth Portfolio.
Power Rankings
Growth Stock Portfolio

20 of 31

Aggressive Growth Portfolio

N/A

Conservative Stock Portfolio

N/A

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