I am bullish on JD.com (JD)as it has tremendous competitive advantages, strong growth momentum and a lengthy growth runway, and the stock currently trades at an attractive valuation based on its multiples relative to its historical levels.
JD.com is a Chinese e-commerce platform headquartered in Beijing. As one of the Fortune Global 500 companies, JD.com has become the largest B2C retailer store in the country – both in terms of revenues and transaction volumes.
The platform offers a wide range of products to its customers, including electronics, apparel, fresh food, and cosmetics. It is also amongst the top three Internet companies in the world, in terms of revenues.
The company has a team of 10,000 employees, and it’s also operational in Bangkok, Thailand.
Strengths
JD.com has had a strong hold in the industry since its inception in 1998.
However, it gained a massive boost in 2004, when the company’s e-commerce platform went online. Its collaborations with both international and local brands have given the company its rightful place in the market, with over 300 million online users.
Known for delivering high-quality, authentic products, the company has an excellent logistics system, which supports its same- or next-day deliveries. Such types of deliveries cover 90% of the company’s offerings.
Although JD.com has given companies such as Alibaba (BABA) strong competition, it’s now also challenging global companies like Amazon (AMZN) with cutting-edge technological solutions and innovations in all primary departments of the business.
Recent Results
According to the company’s annual report in 2020, JD earned revenues totaling $114.3 billion, leading to a net income of $7.6 billion, a 414% year-over-year increase.
Most of this revenue was generated through electronics and home appliances, followed by general merchandise, marketing, and logistics services revenues.
The end of year cash and cash equivalents totaled $13.8 billion in 2020, which was also a staggering increase from 2019’s end-of-year report.
Valuation Metrics
JD stock looks attractively priced here as it trades well below its historical averages on an EV/EBITDA ratio and normalized earnings per share basis.
Its EV/EBITDA ratio is 26.3x compared to its historical average of 29.8x, and its normalized earnings per share ratio is 44x compared to its historical average of 54.5x.
Analysts expect revenue to grow by 21.6% in 2022, and EBITDA to grow by 55.2% in 2022.
Wall Street’s Take
According to Wall Street analysts, JD earns a Strong Buy analyst consensus based on 14 Buy ratings, one Hold rating, and zero Sell ratings in the past three months. Additionally, the average JD.com price target of $107.73 puts the upside potential at 50.5%.
Summary and Conclusions
JD.com is a leader in e-commerce in the massive Chinese market, giving it massive economies of scale, network effect, and customer data advantages.
The stock looks very attractive here as it trades at a clear discount to its historical valuation multiples, its average price target implies substantial upside potential over the next year, and Wall Street analysts are nearly unanimously bullish on it.
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