Is Currently an Undervalued Bet?

The second largest e-commerce player in China, (NASDAQ:JD) has not yet lived up to expectations when going by the stock price performance. Shares of the online reseller are down nearly 13.9% year to date and about 12.64% in the last month. However, the stock just entered the positive movers’ list by rallying 0.42% in Monday’s trading session. Here we use TipRanks data to take a closer look at what Wall Street’s top analysts see in store for this volatile stock.

The company was plagued by concerns around competition and geopolitical worries, which was reflected in the stock price. Sure, the spat between Washington and Beijing has been worrying investors around the world, as the two countries engage in a tariff war by imposing skyrocketing duties on each others’ imports. However, multiple other factors played against JD’s favor which now seems to be changing, as a result of which multiple analysts are now bullish on the stock and are expecting a major turnaround of events in this space. 

Competing with the likes of Alibaba (NYSE:BABA) is never easy, which is why the company went out in search of strategic partners who could position them better to tackle competition. Elaborating on that, JD recently raised $550M from Google parent Alphabet (NASDAQ:GOOGL), in a bid to expand its presence in the United States and pose direct competition to Alibaba’s AliExpress, which deals with overseas customers. Google didn’t mind because it was a win-win for both parties, considering Google’s wish to enter the Chinese market. Moreover, considering Alibaba’s hold in the market, what better than to join forces with the second-biggest player present?

Also, JD being an asset-heavy business, given the fact that it buys, holds, and sells the inventory instead of merely being an aggregator like Alibaba, allows itself to earn higher margins (~26% compared with 10% for Alibaba). Coming to numbers, JD’s revenues surged 33% in the first quarter while its customer count went up 28% to 301.8 million. While the company’s increasing expenses have weighed on the stock price, it presents a good buying opportunity considering the fundamentals. 

Stifel Nicolaus analyst Scott Devitt (Profile & Recommendations) had input to offer on the investment, saying, “JD shares have been challenged year-to-date due to a number of factors including the company’s heightened level of investment, trade war fears, and a slowdown in JD’s apparel category due to increased competition. We support the company’s ongoing investments in logistics and don’t believe this initiative will limit JD’s margin potential over the long run.” He added, “We remain confident in the management team’s execution and support where investment dollars are focused as we believe the initiatives support greater long-term growth potential without sacrificing margin potential.“ He has a $50 price target at the moment, indicating a robust 41% upside from current levels.

It’s also interesting to note that a recent SEC filing revealed that East Coast Asset Management upped its stake in JD by around 237%, owing to the relatively cheaper valuations. The asset management company increased its holding to 233,270 shares from 98,376 in the previous quarter. Indeed, TipRanks analyst consensus mirrors this opinion, as the stock currently floats a relatively optimistic Moderate Buy rating. Out of the 7 analysts surveyed in the past 3 months, 5 have a buy rating on the stock while 2 have a hold rating. Plus the average analyst price target of $47.14 indicates an upside potential of nearly 32.7% from current levels. See Price Target & Analyst Rating Details.

All told, the stock seems to be a cheap buy at the moment. Moreover, given Google’s backing, it can compete with Alibaba’s global offering while also expanding into other parts of the world, including South East Asia. Adding to the bull picture is the fact that going big on investments was a major factor driving up expenses for JD, hence driving down stock prices. The surge in investments can prove wise in the long run, expanding JD’s addressable market and growth numbers — you just have to be patient enough to wait for the results.     

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