Sometimes, it’s easy to overcomplicate things when it comes to investing. The truth is that many of the best investments begin with a simple thesis that anyone could understand. For example, buying shares of a company that operates a growing e-commerce business in the country with the largest population in the world makes a lot of sense at this time. With the e-commerce industry seeing huge demand and the global pandemic accelerating changes in the way that people shop, the momentum behind these types of companies is undeniable.
JD.com Inc (NASDAQ:JD) is the 2nd largest e-commerce company in China and looks like a strong buy at this time. The company reported strong earnings recently and is hitting new all-time highs as a result. It’s a business that is experiencing massive growth and could be a very strong stock to own going forward. Here are a few reasons why JD.com stock is a buy.
Diversified Business Model
JD’s e-commerce platform has become a leading disruptive force in China’s retail industry and the company has been steadily increasing its scale over the years. It sells a broad variety of products including electronics, appliances, and merchandise on its online marketplace and is similar to Amazon (NASDAQ:AMZN) in that you can pretty much find anything on its platform. JD even offers supermarket items on its platform, which ended up being the top source of its revenue in the first half of 2020. General merchandise sales were up 45.4% year-over-year in Q2 to $9.1 billion and Chinese consumers are estimated to spend $5.1 trillion on retail products in 2020. These are the types of numbers that investors love to see.
Along with its impressive e-commerce business, JD is a company that has been steadily investing in its logistics capabilities over the years. This is great news because it is now able to take on large inventories and quickly deliver its products to consumers. Its nationwide logistics network and fulfillment capacity could be difficult for competitors to replicate going forward, and it even offers its logistics services to other companies. There’s also JD’s cloud business and digital healthcare business that could end up paying off nicely for investors going forward. The bottom line here is that this diversified company is setting itself up to become a dominating force in China for years to come.
Surging Revenue and Customer Growth in Q2 Earnings
Analysts were expecting big things from JD in Q2, yet the company was still able to exceed expectations and beat on both EPS and revenue estimates. JD’s revenue grew 34% year-over-year in Q2 which was largely driven by growth in its third-party logistics business along with strong numbers in its first-party retailing business. This was the largest revenue increase for the company over the past 10 quarters and a testament to the impact of the pandemic on consumer shopping habits.
More customers are using JD than ever before, as annual active customers for the company grew 29.9% annually to 417.4 million in Q2. The company saw strong sales growth in its grocery and pharmacy businesses as consumers looked to get their essentials from JD throughout the pandemic. There’s a strong chance that this shift in behavior will last long after the pandemic is over, which is another great reason to consider adding shares of JD.
Partnership and Joint Ventures
JD has made some powerful strategic moves throughout its history, including partnerships and joint ventures that could pay off huge. For example, the company partnered up with Tencent Holdings (OTCMKTS:TCEHY), which is a gaming and social media giant in China that sees huge web traffic daily. The partnership is good for JD because it allows them to leverage Tencent’s massive WeChat app and reach more consumers through its other popular digital channels.
There’s also the joint venture between JD and Walmart (NYSE:WMT) which is helping JD take market share away from Alibaba’s (NYSE:BABA) Hema Fresh brick-and-mortar stores. These types of moves should not only give investors confidence in JD’s vision but also provide peace of mind knowing that other major companies are willing to invest in JD.
Strong E-commerce Option Even with Its Risks
JD.com is one of the strongest e-commerce stocks to consider buying at this time. It’s massive growth, diverse business model, and realistic valuation make it a great option for investors that are interested in adding e-commerce exposure to their portfolio in one of the largest retail markets in the world. Although there are risks related to supply chain disruptions, competitors, and tensions between the U.S. and China, the long-term potential for JD makes it worth a look even at all-time highs.
Before you consider JD.com, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and JD.com wasn't on the list.
While JD.com currently has a "Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.
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