JD.com (JD) stock price has staged a strong comeback, as I predicted in August. It soared to a high of $47.78 this month, its highest point since February 2023. It has jumped by more than 135% from its lowest point this year, pushing its market cap to over $64 billion.
JD’s rebound has coincided with that of other top Chinese companies. Alibaba shares have soared by over 68% from its lowest level this year and by 65% in the same period. Other Chinese companies like Nio, XPeng, and Li Auto have also done well in the same period.
Chinese stimulus hopes
JD.com and other Chinese companies have done well in the past few weeks, helped by the recent hopes of stimulus, and the fact that most of them are highly undervalued.
The Chinese central bank has unveiled a series of stimulus measures, including lowering a key bank rate that will unlock over $125 billion in funds. Some of these funds will flow to Chinese companies, through share buybacks.
Beijing has also pledged measures to rescue the ailing property market and boost consumer spending. On Monday, officials vowed more support for businesses, a move that will widen its budget deficit.
As part of the new measures, the government vowed to refund businesses for illegal or arbitrary fines they imposed in the past few months. Also, officials are considering implementing new rules to promote the rule of law and prevent illegal measures taken against businesses.
Most importantly, Beijing is working to provide support for large and fast-growing technology companies that have been targeted in the past few months. Large firms like JD and Alibaba have been targeted by Beijing authorities in the past few years for their monopolistic behaviors.
Therefore, the JD.com stock price has rebounded because of the anticipated growth and consumer spending in the country.
Actions could reboot JD’s business
These actions could help JD.com, a leading e-commerce player whose business is slowing as competition in the country continues. JD is competing with the likes of Alibaba, Suning, and PDD Holdings, the parent company of Pinduoduo and Temu.
The most recent financial results showed that JD.com’s net revenue grew by just 1.2% in the second quarter to RMB 291 billion. In the past, the company was used to experience a double-digit growth rate as its demand jumped.
Its JD Retail revenue rose by 1% to RMB 257.1 billion, while its logistics revenue jumped by 8% to RMB 44.2 billion. On the other hand, its new business segment, which includes businesses like JD Worldwide and JD Property retreated by over 35%.
JD Worldwide is the company’s solution that lets companies from around the world to reach Chinese companies. It is open to international brand and exclusively authorized distributors, including the likes of Philips, Braun, Thermos, and Unilever.
Therefore, with the vast of its business slowing, investors believe that additional liquidity being offered by Beijing will help it to restart its growth.
We believe that JD lacks clear catalysts to go back to where it was a few years ago even with this stimulus. Unlike PDD Holdings, JD is primarily a local brand with no major international business, meaning that its business growth will be affected by the economic slowdown.
PDD Holdings’s revenue growth has been boosted by its Temu business, which we have cautioned about before.
Read more: JD.com falls by over 10% on reports of Walmart stake sale
Highly undervalued
The bullish case for JD.com is that it is one of the most undervalued companies in the industry. It has a market cap of over $60 billion, is highly profitable, and one of the best balance sheets in China.
JD’s annual profit has moved from $1.74 billion in 2019 to over $4.2 billion in the trailing twelve months (TTM). This profitability has continued as the company has continued to slash its operating expenses.
As a result, it has a trailing twelve-month price-to-earnings ratio of 14, lower than most companies in the industry.
It also has a solid balance sheet whose cash and short-term investments have risen from $8.8 billion in 2019 to over $27.78 billion in the TTM. Its long-term debt stands at $7.8 billion, giving it a net cash of $20 billion.
The company is using its strong balance sheet to buy back its stock, which will boost its earnings per share.
JD stock price analysis
The daily chart shows that the JD.com stock price has been in a strong comeback in the past few months. It recently crossed the important resistance point at $35.73, its highest point on May 20th.
It also crossed the key resistance level at $40.80, its highest point in July 2023. Most importantly, it has formed a golden cross as the 50-day and 200-day Exponential Moving Averages (EMA) have crossed each other.
Therefore, the stock will likely continue rising as bulls target the next key resistance point at $64.25, its highest swing on January 4.
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