Due to numerous challenges, some investors choose not to buy stocks representing China-based businesses. If you decide not to take a position in JD.com (NASDAQ:JD) shares, that’s certainly your prerogative. However, I am bullish on JD stock as the company is demonstrating resilience even while the Chinese economy remains under pressure.
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JD.com is a vast Chinese e-commerce platform for buyers and sellers. There’s a chance that you’re not very familiar with the company and its platform if you live outside of Asia. However, if you’re ready to consider international investments, JD stock belongs on your radar.
It’s interesting that JD.com bills itself as a “leading supply chain-based technology and service provider,” as the mere mention of supply chains is enough to strike fear into the hearts of investors in 2022. Along with supply chain disruptions and China’s on-again, off-again COVID-19 lockdowns, JD.com has had to deal with concerns that American regulators might delist the company’s U.S.-listed stock.
Those issues haven’t gone away by any means. Nevertheless, JD.com has faced its challenges with impressive resilience – and as the data will demonstrate, adversity can sometimes produce unexpected earnings beats.
Thriving in China’s E-Commerce Market Isn’t Easy
Make no mistake about it: China’s economy is under tremendous pressure. The nation’s strict COVID-19 control measures are straining already disrupted supply chains. China still has the world’s biggest e-commerce market, but I would be remiss to ignore the struggles that JD.com will face as a Chinese business.
According to the Wall Street Journal, consumers in China are reducing their discretionary purchases. They’re becoming thriftier, and it’s showing up in the data in 2022. Thus, Insider Intelligence, a research firm, anticipates China’s e-commerce sales to increase 9.1% this year – the country’s slowest e-commerce growth since 2008.
This is where JD.com can be nimble as a business enterprise, however. Remember, JD.com’s platform provides a wide variety of items. These include not only discretionary/luxury items but also essential/home goods that people can’t easily live without. Indeed, supermarket items are JD.com’s largest growth category. Moreover, JD.com’s order volume in this category increased by more than 25% year-over-year during 2022’s second quarter.
JD Stock’s U.S. Delisting Threat Might be Resolved Soon
Another concern among some investors is that JD.com’s U.S.-listed stock has been under a potential delisting threat for a while. This is mainly due to American regulators’ apparent difficulty with auditing the finances and/or operations of some China-based businesses.
The two nations’ governments may be closer to resolving this matter, though, at least when it comes to certain China-based companies. Reportedly, an agreement between China and the U.S. will allow American regulators to audit the data of some Chinese firms.
Not only that, but the U.S. has already selected its first batch of U.S.-exchange-listed Chinese firms to audit – and JD.com is one of them. Bloomberg reported that according to one of two “people with direct knowledge of the matter… [t]he U.S. Public Company Accounting Oversight Board has requested to review materials from the latest financial year” of the selected China-based businesses.
As they say, it’s all about baby steps. Don’t assume that JD.com will be cleared for continued listing in the U.S., but at least it appears that the two nations are working toward greater data transparency and, therefore, an easing of tensions so that Chinese companies are less likely to be delisted in the U.S.
JD.com Managed to Beat Revenue and Profit Estimates
We’ve already acknowledged how difficult it is to succeed as an e-commerce business in China in 2022. Knowing this, you might be tempted to assume that JD.com’s second-quarter financial results must have been a disaster. Yet, the company actually exceeded Wall Street’s expectations on both the top and bottom lines.
First of all, JD.com’s Q2 2022 net revenue of RMB267.6 billion ($40 billion) indicated a 5.4% year-over-year increase, as well as a beat compared to the analyst consensus estimate of RMB262.3 billion. In addition, the company’s adjusted earnings of RMB4.06 ($0.61) per share demonstrated a huge improvement over the year-earlier quarter’s RMB2.9 per share while easily beating Wall Street’s expectation of RMB2.79 per share.
To top it all off, JD.com reported an increase in the company’s cash and cash equivalents, restricted cash, and short-term investments. That figure totaled RMB206.8 billion ($30.9 billion) as of June 30, 2022, which is higher than the RMB191.3 billion recorded as of December 31, 2021.
In light of these outstanding results, JD.com CEO Lei Xu acknowledged China’s harsh economic landscape while also touting his company’s strength amid adversity. “JD.com’s resilient business model, industry-leading supply chain capabilities, and efficient operations helped us deliver solid quarterly results amidst ongoing challenges in the external environment,” Xu explained.
What is the Target Price for JD Stock?
Turning to Wall Street, JD stock has a Strong Buy consensus rating based on nine Buys assigned in the past three months. The average JD stock price target is $90.33, implying 47.4% upside potential.
Conclusion: JD Stock Has the Ability to Effectively Operate in China
It would be unrealistic to assume that a China-based company like JD.com can easily surmount the nation’s numerous challenges. Conducting business in China will require skill and persistence, along with a deep reserve of capital. Fortunately, JD.com has all of these, and the data shows this. It’s truly impressive that the company beat the analysts’ revenue and earnings expectations while also growing its order volume in JD.com’s supermarket items category.
Hence, you don’t have to let China’s economic problems dissuade you from taking a position in JD.com stock. Sure, there will be issues to overcome in China throughout the remainder of 2022 and probably well into 2023. Yet, if any Asian e-commerce company can beat the odds and deliver value to its shareholders, it’s JD.com.
