Is JD.com Stock Leading a Market Comeback?

Monday, March 2, 2020 | Chris Markoch
Is JD.com Stock Leading a Market Comeback?

Share of JD.com (NASDAQ:JD) surged on March 2 after the company posted an increase in earnings and revenue. The company also posted an increase in annual active customer accounts of over 20% for the quarter. The stock was up over 9% in mid-day trading. This effectively made up for the stock’s losses in the previous week’s market correction.

But perhaps the more interesting story is that JD.com stock was actually up about 14% in 2020 prior to the market correction that started around February 21. Despite being front and center in the COVID-19 virus, the stock of the top retailer in China was rising.

I’m not sure that JD.com’s 2020 stock price growth is a larger message about the seriousness of the coronavirus. The company’s stock had turned negative for 2020 in late January. This was right about the time when news of the virus became widespread. And prior to this recent rally, JD stock has been mirroring the stock of other e-commerce companies such as Alibaba (NYSE:BABA).

However, in early February, researchers in China and the United States were announcing potential cures for the coronavirus. Within a couple of weeks, the stock had recovered from those losses. And, the market correction in late February was more due to the announcement that the virus was spreading outside of China. 

There is no question that the COVID-19 virus will hang over the market, and in particular Chinese stocks, for quite some time. But, JD.com is showing that there may be reason for optimism.

JD.Com Gives Investors Multiple Reasons to Be Bullish

There are many analysts that are bearish on China’s industrial economy. And there may be bigger problems in the country’s economy than we know today. However, JD.com is showing that China’s service economy is alive and well. After all, if the company’s numbers show nothing else, it’s that people need to get things, even if they’re being quarantined.

And JD.com was able to deliver the goods, literally. In fact, JD.com may have been able to prosper due to its targeted strategy of targeting cities that are considered “second or third” tier cities in terms of population. The company is discovering that customers in these cities have a bit more disposable income due to the lower cost of housing.

Plus, JD.com has made a significant investment in logistics. This means that they heavily utilize drones and robots for their deliveries. Not only does this make the company less labor dependent, but it also helps alleviate a handling concern as it relates to the virus.

JD.com has also been able to take steps to address the sale of defective or counterfeit products. The company only sells goods it has acquired. And finally, in the last two years, JD has made a heavy investment in logistics. While the company’s logistics division is currently a drain on the company’s profits, it appears likely to become a catalyst to its bottom line over the next couple of years.

One reason is because third-party companies are paying JD.com to ship their merchandise. In fact, in the prior quarter, 40% of the revenue that the company’s logistic unit earned came from outside companies. That’s a key reason that the unit’s operating loss fell by over 20% from the prior year.

Is it Time to Buy JD.com?

Although the stock currently has a consensus buy rating. Analysts have a price target that suggests the stock will drop nearly 10% in the coming year. This suggests that, for the current moment, the stock may not have much more room to grow.

And, investors do need to keep in mind that it will not likely be until the company’s next earnings report when they will see just how much the coronavirus has affected the stock. Since the market is usually forward-looking, I would expect that stocks such as JD may be more volatile in the next couple of months as analysts try to make their predictions.

With all that said, JD.com is showing growth in the midst of the outbreak. So even if you’re a glass empty kind of investor, you have to think that the worst may already be priced into JD.com stock.

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