This year has been quite brutal for Chinese stocks. Delisting concerns, slowdown in the Chinese economy, supply chain disruptions triggered by COVID restrictions, regulatory pressures, and the tension between the U.S. and China have dragged down Chinese stocks. Amid the ongoing uncertainty due to COVID fears in China, we used TipRanks’ Stock Comparison Tool to place JD.com (NASDAQ:JD), Alibaba (NYSE:BABA), and Li Auto (NASDAQ:LI) against each other to pick the most attractive stock.
JD.com (JD) Stock
JD.com, one of China’s leading e-commerce retailers, generated accelerated revenue growth in Q3 2022 after reporting its slowest year-over-year revenue growth of 5.4% in Q2. The company’s Q3 revenue increased 11.4% to RMB 243.5 billion ($34.2 billion). Furthermore, adjusted earnings per American depositary share (ADS) nearly doubled to RMB 6.27 ($0.88). JD’s earnings easily topped expectations, but revenue fell short of estimates.
Operating efficiency and cost discipline fueled JD’s strong Q3 earnings. Annual active customer accounts grew 6.5% to 588.3 million at the end of Q3, mainly due to the net addition of more than 10 million active users in the company’s core retail business.
The company continues to focus on improving the profitability of JD Logistics, its second-largest division after JD Retail. In Q3, JD Logistics’ revenue grew 39%, and the division swung to an operating income of RMB 253 million compared to an operating loss of RMB 727 million in the prior-year quarter.
Is JD Stock a Buy?
Following the Q3 print, Citi analyst Alicia Yap increased the price target for JD.com stock to $90 from $85 and maintained a Buy rating. The analyst noted that JD’s management expects to sustain the improved profitability generated through efficiency and lower costs.
Yap believes that JD remains well positioned to deliver reaccelerated revenue growth and active user count once the COVID-19 restrictions fade away.
On TipRanks, JD stock earns a Strong Buy consensus rating with 12 Buys versus one Hold. The average JD stock price target of $79.54 implies nearly 42% upside potential.
Alibaba (BABA) Stock
E-commerce giant Alibaba’s revenue grew 3% to RMB 207.2 billion ($29.1 billion) in the fiscal second quarter (ended September 30, 2022) after falling marginally in Q1 FY23 (BABA’s first quarterly revenue decline since it went public). That said, Q2 revenue lagged analysts’ estimates. The slowdown in the Chinese economy, COVID-19 resurgence, and currency headwinds impacted the top-line growth in the quarter.
Nonetheless, the company’s adjusted earnings grew 15% to RMB 12.92 ($1.82) per ADS and surpassed estimates, thanks to cost efficiency measures. While Alibaba’s Fiscal Q2 performance reflected the resilience of its business model, concerns about deceleration in the e-commerce business remain.
Aside from the pressure on Alibaba’s e-commerce business due to rising competition and macro challenges, the slowing growth rate of the cloud computing business is also worrisome. Alibaba’s cloud computing business is considered to be a key driver of its future growth. In Fiscal Q2, the Cloud segment’s revenue increased 4% compared to 10% growth in Fiscal Q1.
Is Alibaba a Buy Right Now?
Following the Q2 results, UBS analyst Jerry Liu lowered his price target for Alibaba stock to $135 from $140 but maintained a Buy rating. Liu views Alibaba as one of the several companies that are poised to benefit from macro improvement.
He feels that Alibaba stock is a “value play” at a forward P/E (price-to-earnings) multiple of 9. Nonetheless, Liu cautions that investors should expect growth to decelerate in Fiscal Q3 before improving next year.
Overall, Wall Street’s Strong Buy consensus rating for Alibaba stock is based on 15 unanimous Buys. The average BABA stock price prediction of $133.73 suggests 66.2% upside potential from current levels.
Li Auto (LI) Stock
Li Auto and other Chinese electric vehicle (EV) makers have been significantly impacted by COVID-induced supply chain bottlenecks. Earlier this month, Li Auto reported a 31.4% year-over-year rise in its October deliveries to 10,052 vehicles. Nonetheless, October deliveries declined nearly 13% compared to September.
Li Auto is optimistic about future growth based on its portfolio of innovative vehicles. It is experiencing robust demand for its L9 SUVs since deliveries for this model began on August 30. On November 10, the company officially commenced deliveries of its premium six-seater SUV, the Li L8. Li Auto is now gearing up to start the deliveries of the Li L7 SUV in Q1 2023.
Is Li Auto Stock a Good Investment?
Morgan Stanley analyst Tim Hsiao noted that Li Auto’s October sales were in line with market expectations and reflected the company’s strong execution despite the continued shortage of components.
Hsiao added, “Meanwhile, stable deliveries of L9 hovering around 10k for the second consecutive month should ease market concerns over slowing L9 demand and underpin volume upside into Nov/Dec when contribution from L8 starts kicking in.”
Hsiao reaffirmed a Buy rating on Li Auto stock and a price target of $35.
Li Auto scores a Strong Buy consensus rating based on three unanimous Buys. The average LI stock price target of $41.33 suggests 131.2% upside potential.
Conclusion
The slowdown in China’s economy and the uncertainty surrounding the COVID-19 situation continues to impact investor sentiment about Chinese stocks. Nonetheless, Wall Street remains bullish on JD, Alibaba, and Li Auto. Both JD.com and Alibaba are well-established players, and analysts expect these e-commerce giants to rebound once the near-term headwinds diminish.
Currently, analysts see the pullback in Li Auto as a great opportunity to buy this growth stock and gain exposure to the rapidly expanding EV market. They estimate higher upside potential in Li Auto than the other two stocks.
