Bear of the Day: JD.com (JD)

JD.com Company Overview

Based in Beijing, Zacks Rank #5 (Strong Sell) stock JD.com (JD) is one of the largest Chinese e-commerce and technology companies. Also known as Jingdong, JD.com separates itself from the competition by being an essentially vertically integrated e-commerce retailer. JD holds its own inventory, is responsible for its own logistics and deliveries, and provides its own customer service. JD is similar to Amazon (AMZN) in that it sells a wide variety of products on its e-commerce platform, including clothing, groceries, electronics, and more. Beyond e-commerce, JD also operates health, technology, real estate, and industrial segment businesses. Additionally, JD owns Ochama, a European-based retail brand with operations in the Netherlands France, and Poland.

JD Suffers from Relative Price Weakness Vs. Peers

Legendary growth investor William O’Neil once proclaimed that Wall Street’s great paradox is, “Stocks that seem too high in price and risky for most investors usually go higher and stocks that seem low and cheap often go lower.” I have largely discovered that more often than not, O’Neil’s paradox comes to fruition. That’s bad news for JD shares, which trade at $30 and are well off their all-time high of >$100. Additionally, relative price action can provide investors with valuable clues. Currently, JD shares exhibit troubling relative weakness and are -10.70% year-to-date, far underperforming top competitors like Pinduoduo (PDD) and Alibaba (BABA), which are up 27.7% and 54.4% respectively.

JD: Chinese Economic and Regulatory Concerns

While the Chinese economy has staged a recovery, it still suffers from a sky-high unemployment rate, a devastated real estate market, a weak consumer, and deflationary pressures. Meanwhile, geopolitical tensions, a trade dispute with the United States, and limited room for fiscal stimulus mean that external and internal demand are likely to suffer. Beyond the economic concerns, JD investors must worry about a Chinese government that has been known to routinely crack down on its companies.

JD: Slowing Earnings Growth

JD earnings growth is declining at an alarming rate. For the current quarter, Zacks Consensus Analyst Estimates suggest that earnings growth will be -64.52%. Meanwhile, while annual revenues are expected to grow 14% in 2025, Wall Street expects full-year earnings to drop 37.09%.

JD Food Delivery Business is a Headwind

JD is making an aggressive play for the Chinese food delivery market. While the number of users for the company’s Uber (UBER) Eats or DoorDash (DASH) like business has increased, the segment has produced significant losses thus far. Worse still, the company must invest significant capital maintain its reputation for fast and reliable delivery in a highly competitive market.

Bottom Line

The combination of fierce competition, a shaky Chinese economy, and costly new endeavors is pressuring JD.com’s fundamental performance.

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This article originally published on Zacks Investment Research (zacks.com).

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