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JD.com Stock: Where to Go after August Rally

A series of regulatory crackdowns by the Chinese authorities have dealt a major blow to China’s major tech companies. Some of the most-affected Chinese stocks included JD.com (JD), Alibaba (BABA), Tencent Holdings (TCEHY).

While JD hasn’t been hit directly (yet) from regulators, it appears investors are keen on reducing exposure to China.

For JD stock, this has culminated in a decline of more than 28% from its peak this year. (See JD stock charts on TipRanks)

Yet, this is actually one of the only stocks many fund managers will touch right now. Famed growth stock investor Cathie Wood has been most bullish on JD stock, relative to its Chinese tech peers.

With the Hang Seng index rallying in recent weeks, the question is — can this continue? Will JD stock surge back to all-time highs?

Let’s take a look at what may drive this Chinese tech stock’s performance from here. I am bullish on the stock.

JD Stock’s Strong Recent Performance

China’s second-largest conglomerate announced its second-quarter results on August 23. As per the Q2 financial data, net revenues came in at $39.3 billion. This represents a 26% jump from the revenue generated in Q2 2020. 

JD clocked net service revenue of $5.3 billion, a 49.2% year-over-year increase. Income from operations stood at $46.6 billion, while non-GAAP income from operations was $0.4 billion. 

These numbers broadly show strength in the Chinese recovery from the pandemic. Investors betting on a resurgence in Chinese consumption have gotten what they wanted.

Attractive Valuation

JD stock isn’t cheap, in a traditional sense. This is a still a company trading at roughly 54x forward earnings. However, on a price-to-sales basis, this stock is trading at 0.7x, a criminally low valuation for this high-growth play.

Those who believe JD can outpace analyst predictions, on the bottom line in particular, should certainly consider JD stock at these levels. This is a growth stock trading at a valuation that is nearly impossible to find in the U.S.

It’s a Chinese tech company, and that carries its own set of risks. This is also a logistics-heavy company that will need to reinvest in its business to see growth over the long-term.

However, it appears these factors are more than baked into JD’s current valuation right now. The company’s forward-looking growth projections remain strong.

Rally Disrupted by Newly Proposed Regulations

China decided to introduce fresh regulations towards the end of last month. According to Dow Jones, this new regulatory curb will prohibit big Chinese companies with massive amounts of consumer data from floating shares in the U.S.

This new rule halted the rally that was noticed in Chinese tech stocks. Tencent Holdings stock dropped 1.1% while Alibaba and Meituan slid 3.9% and 0.8%, respectively. JD stock also dropped following the announcement alongside its peers.

The Cyberspace Administration of China stated companies with more than 1 million users would now have to seek approval before listing in foreign nations.

This sort of regulatory oversight could hamper JD’s ability to raise foreign capital. However, given JD’s well-capitalized structure, it’s hard to argue that such capital raises may be needed from here.

Wall Street’s Take

According to TipRanks’ analysts rating consensus, JD stock is a Strong Buy. Out of 12 ratings, there are 11 Buy recommendations, and one Sell recommendation. 

The average JD price target is $95.23. The stock price target lies between a low of $62 per share, and a high of $125 per share.

Bottom Line

Despite the regulatory crackdowns, JD stock seems to be doing quite well. The company is focusing on expanding its line of business and moving into telehealth and supermarkets. JD’s logistics prowess, vast business network, and focus on innovation give it an edge against its competitors.

Like other Chinese tech giants, JD comes with massive growth potential. However, unlike many of its peers, JD has not yet faced any direct crackdown from authorities so far.

Accordingly, this is a stock that investors may rightly view as safe to consider right now. 

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article

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