JD.com (JD.US) is one of the largest e-commerce companies in China, formerly known as “360buy”. It is a company that has usually also been compared to Amazon from the beginning and that has subsequently been attributed as a competition to Shopify, for having multiples on revenue much lower than the industry average, which gives it a greater potential for revaluation.
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As can be seen in the graph above, JD has recorded notable year-on-year revenue growth rates over the past 5 years, the "slowest" being 22.7%. In fact, JD's LTM (long-term) revenue growth rate has accelerated recently, reaching 33.3% in the last quarter. Despite that, its EV / LTM Rev multiple has been consistently below 1.1x, marking its strong appeal as a "cheap" growth stock.
In fact, JD's Price / LTM Sales ratios are currently in the 32nd percentile when we compare their multiples over the past 5 years, which could even create opportunities for value investors who may be looking for a "next Amazon" share class. "that is being sold for a value that could now be considered a 'bargain'
However, when developing your business within the Asian market, comparing it with Amazon is not as accurate as comparing it with its main competitor in the local market, Alibaba, and the differences are abysmal.
Taking a quick look at Alibaba's fundamental parameters, these show some interesting observations. Even though Alibaba's market capitalization is close to 5 times that of JD, Alibaba actually reported lower LTM revenue (89% of JD's LTM revenue) than JD. In fact, Alibaba has reported lower revenue figures than JD for the past 5 years. Both BABA and JD are money-making machines, and proof of this is their revenue growth, with a 3-year BABA CAGR of 42% and a 3-year JD CAGR of 27.2%. Despite JD's impressive revenue growth, Alibaba is valued at 5.5 times more than JD here based on their respective revenue multiples, thus raising the question of whether the market has valued JD correctly. JD, much less than he really deserves.
Observing in more detail the evolution of the revenue of both companies, can we consider that we are facing a “rough diamond” of the Asian market, which has not received the attention (or the publicity) that its main competitor has received?
Technical analysis
JD's long-term uptrend remains intact despite the Chinese stock sell-off on February 21 that sent JD's share price down 30% from its peak. The $ 70 support level received strong buying interest as well as the $ 59 support level. The bulls are trying to regain the $ 79 support level right now. Therefore, investors who wish to initiate their positions should wait for the break of the current resistance level, or if the bulls fail to break the barrier, wait for the retest of support at $ 70.
For Chinese stocks, Chinese and US regulators will likely remain the most important short-term risk that can cause further declines in their share prices. Risk aside, JD appears as an opportunity to incorporate into stock portfolios, since compared to its competitors it is not expensive, quite the opposite. The more the stock falls in the future due to policy changes or rigid rules from Beijing or Washington, the more attractive it will be to long-term investors who have yet to initiate a position.
Dario Garcia
XTB Spain
