Consider an investment in China, formerly uninvestable

JD.com ( JD ), and Chinese companies in general, were previously considered uninvestable by many. That sentiment is quickly changing, however, after China’s central bank unleashed the monetary policy bazooka. I think JD.com should benefit in the coming quarters. All in all, I’m bullish on JD stock because JD.com is a revenue producer and is reasonably valued.

JD.com is an e-commerce company based in China. It’s not as big as Alibaba ( BABA ), but JD.com is still a big company with a market cap of about $62 billion.

Until recently, during the past year, JD’s stock chart looked like a scary rollercoaster. However, the stock is rising now, and there’s an identifiable reason for that. All things considered, you might agree with my view that JD.com stock provides a good entry point for exposure to a potentially recovering Chinese economy.

Massive China Stimulus and JD.com

China’s post-pandemic economic recovery has been uneven, and cyclical businesses such as Alibaba and JD.com have had to navigate a challenging environment for several years. On the other hand, China’s government is now responding with a massive wave of monetary stimulus. This supports my bullish outlook, as an increase in China’s overall business activity should provide a tailwind for JD.com’s top and bottom lines.

Last week was revelatory as China’s tech stocks had their best week since 2008. Before that, according to DataTrek’s Nicholas Colas, many global investors considered Chinese stocks “almost uninvestable.” Now, however, the People’s Bank of China (PBOC) is launching an 800 billion RMB ($114 billion) loan fund for China’s capital markets. This “surprising announcement of aggressive fiscal and monetary policy action,” notes Colas, “encourages a reassessment” of the view that China’s businesses are uninvestable.

Billionaire David Tepper even went so far as to say that now is the time to buy “everything” in China. I’m a bit more discriminating, but JD.com will undoubtedly benefit from what PBOC Governor Pan Gongsheng says will be at least 800 billion yuan ($113 billion) worth of liquidity support from the Chinese government for the nation’s affairs. This financing could stimulate economic activity in general, while also facilitating the buyback of company shares. Only time will tell how much all of this will affect JD.com in particular, but it’s easy to imagine an increase in e-commerce sales and revenue for this renowned Chinese business.

JD.com’s impressive revenue growth

Investors may wonder why JD stock is a standout opportunity among all the top Chinese stocks. For starters, I’d point to JD.com’s solid financial profile. The company has a respectable balance sheet with $28.8 billion in cash and minimal debt. This supports my JD bull thesis on JD stock, as I prefer to invest in financially stable businesses.

The story continues

Another sign of financial stability is JD.com’s rising revenue. In the second quarter of 2024, JD.com increased its diluted net income per American depositary share (ADS) by 97.3% year-on-year to RMB 8.19 ($1.13). If you prefer to use adjusted (non-GAAP) measures, then JD.com’s diluted net income per ADS rose 73.7% to RMB 9.36 ($1.29), which is still pretty impressive .

Moreover, despite challenging macroeconomic conditions in China, JD.com has beaten earnings per share (EPS) estimates for more than 15 consecutive quarters. Imagine how much the company could do now that China’s government is providing major financial support to the nation’s economy.

JD.com looks reasonably priced

JD shares rose on the stimulus news from China, but I think there is more upside potential. The company’s price-to-earnings (P/E) ratio is very reasonable, and this will likely attract many value-conscious investors looking to dive into US-listed Chinese stocks.

We can calculate JD.com’s adjusted 12-month (non-GAAP) P/E ratio as $39.90 (the recent share price) divided by ($0.95 + $0.75 + $0.81 + 1 .33 USD) or 10.39x. This compares favorably to the sector’s median P/E ratio of 15.28x, as well as JD.com’s five-year median P/E ratio of 34.98x. Therefore, I think value seekers should consider adding JD.com stock to their watchlists.

Is JD Stock a Buy, According to Analysts?

On TipRanks, JD appears as a Strong Buy based on nine Buy ratings and three Hold Ratings assigned by Wall Street analysts over the past three months. There are no current sales ratings. JD.com stock’s average price target is $38.54, not far from its most recent trade price.

Bottom line: Should investors consider JD stock?

JD.com seems reasonably valued, despite the recent rise in its share price. It helps that the company’s profitability has increased. JD.com is also a cyclical e-commerce business that is poised to benefit from the stimulus measures recently announced by the Chinese government.

Analysts rate JD.com stock as a Strong Buy on average, and that boosts my confidence. While investing in JD stock is not without risk, I have a favorable long-term view of JD.com right now.

Disclosure

Disclaimer