JD.com (JD) operates a popular ecommerce platform in China. I am bullish on the stock.
Suffice it to say, it hasn’t been easy to invest in Chinese businesses during the past year. The Chinese government has cracked down on a number of companies due to cybersecurity risks, and this has made it more difficult for those companies to conduct business.
On top of that, a COVID-19 surge and the resulting lockdowns hampered business growth in China this year. Those lockdowns may be easing somewhat now, but the economic impact will likely persist for a while.
All of these factors have ripple effects. In particular, China’s lockdowns have undoubtedly complicated the nation’s supply-chain logistics. Even a popular ecommerce platform like JD.com has surely struggled due to these ongoing challenges.
Even with all of this in mind, you don’t have to give up on Chinese stocks, or on JD stock in particular. Even with persistent challenges, JD.com’s resilience may surprise you and a stunning share-price turnaround could be in store.
Staying Accountable, and Listed
In early 2021, it seemed like the investing community just couldn’t get enough of JD stock. The share price reached $106 at one point, but in hindsight we can see that JD stock wasn’t destined to stay above $100 in 2021.
Recently, the stock struggled to stay above $50 and some folks probably wondered whether JD.com was in serious trouble. Reinforcing this concern was the news that the U.S. Securities and Exchange Commission (SEC) identified JD.com under the Holding Foreign Companies Accountable Act. It’s a complicated issue, but basically the SEC determined that there was difficulty auditing/inspecting JD.com’s financial statements.
This problem raises concerns that JD stock could potentially be de-listed from the NASDAQ exchange, and from U.S.-based exchanges in general. It’s a legitimate concern, since it’s hard to know what the shareholders should expect to happen next if JD stock is de-listed in the U.S.
To help quell these concerns, JD.com released a status update concerning the Holding Foreign Companies Accountable Act. As the release explained, in accordance with the Holding Foreign Companies Accountable Act, “a company will be delisted from a U.S. stock exchange only if the company has been identified by the SEC for three consecutive years.” This is due to the Public Company Accounting Oversight Board’s “inability to inspect auditor’s working paper.”
JD.com hasn’t been identified by the SEC for three consecutive years, so U.S.-listed JD shares seem safe for the time being. Furthermore, JD.com assured that the company will “strive to maintain its listing status on both Nasdaq and the Hong Kong Stock Exchange.”
Beating the Odds, and Wall Street’s Expectations
So far, we’ve determined that JD.com is dealing with a long-term de-listing threat, supply-chain issues, COVID-19 lockdowns, and a government that’s cracking down on China’s businesses. With all of those headwinds, it might seem like JD.com can’t possibly succeed in 2022.
Yet, the world of business is full of surprises. During this year’s first quarter, JD.com topped top-line expectations and offered a glimmer of hope to the company’s downtrodden investors.
After converting to U.S. dollars, JD.com generated $37.8 billion during Q1 2022, representing an increase of 18% versus the first quarter of 2021. Analysts on Wall Street, meanwhile, had only expected JD.com to report $34.7 billion in quarterly revenue. A particular top-line highlight was the company’s net service revenue, which totaled $5.6 billion for the quarter, up 26.3% year-over-year.
Chief Executive Lei Xu certainly earned bragging rights in light of JD.com’s ability to generate robust revenue despite the macro-level headwinds. “JD.com’s robust supply chain capabilities and technology-driven operating efficiency underpinned our solid performance during the quarter as we continued to deliver healthy growth amidst a challenging external environment,” Xu explained.
In the interest of full disclosure, we must acknowledge that JD.com reported a quarterly earnings loss of 30 cents per share. Analysts had anticipated positive earnings of 24 cents per share, so this clouds an otherwise outstanding quarter for JD.com.
Still, you can choose to focus on the positive instead of dwelling on the negative. There could be a turnaround story in progress here – and perhaps J.P. Morgan (JPM) recognized the upside potential with JD.com, as the firm recently upgraded JD stock’s rating from Underweight to Neutral. It’s not necessarily a ringing endorsement, but it’s a step in the right direction.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, JD is a Strong Buy, based on 10 Buy and one Hold ratings. The average JD.com price target is $86.64, implying a 61.43% upside potential.
The Takeaway
There’s certainly no guarantee that JD.com’s problems will be resolved, or that it will get easier to invest in Chinese stocks this year. Besides, there’s no guarantee that JD stock will continue to be listed on the NASDAQ exchange several years from now.
Still, as long as you’re willing to accept the risks involved, JD stock has the potential to stage a powerful comeback. If you’re ready to wager on a Chinese ecommerce giant with surprisingly robust revenue, then feel free to take a long position in JD.com.
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