The Bottom Could Be In For JD.com

The Bottom Could Be In For JD.com

Gain Exposure To China With JD.com

If you're looking to gain exposure to China JD.com (NASDAQ: JD) is not a bad choice. The company is an eCommerce giant and retail infrastructure provider akin to Amazon and growing by double digits. The company's business is supported by the same secular tailwinds and post-pandemic recovery as its western cousins and the outlook for growth is even more robust. Although there were some mixed details within the Q2 earnings report the news is generally good and has price action moving higher in In early trading. Based on the results and the chart it looks like JD.com could be putting in a bottom.

JD.com Had A Great Quarter Despite Weak Data

The recently released read on China’s July retail spending has been weighing on price action the past couple of weeks but may be misleading the market. While retail sales, and in particular, eCommerce sales, fell short of the general expectation they are still up 8.5% and 4% from last year respectively. In regards to JD.com. The company's efforts to expand its merchant count, increase the quality of merchants, along with the increase of traffic coupled with an increase in ticket averages drove strong results. On the top line, the $39.30 billion (converted from renminbi) in net consolidated revenue is up 37.7% from last year and beat the consensus by 300 basis points. 

Moving down to the margins and earnings is when the report begins to become mixed. The company reports an adjusted operating margin of 1.0% versus the 1.43% expected by the analyst and weak GAAP earnings too. This difference is due in part to relief efforts provided by JD.com for flood-stricken regions of China and offset by adjusted earnings. The GAAP EPS of $0.08 missed the consensus by $0.13 while at the adjusted level, earnings of $0.45 beat by $0.11, and earnings are expected to grow significantly over the next couple of years.



The Analysts Like JD.com

The analysts like JD.com because eCommerce is retail of the future and China's consumer economy is growing like crazy. There hasn't been a lot of chatter from the analyst community in the wake of the report but there have been regular updates this year. The two key takeaways for us are that 1) the consensus price target has been drifting lower over the past few months helping to set up today's buying opportunity and 2)  the consensus price target of $102 is still assuming 60% of upside for this stock. The high price target of $133 assumes more than 100% upside for this stock and we think that this is a low estimate. The company not only trades at a significant discount to Amazon but it will grow to be larger than Amazon including Amazon web services, China is that big.

The Technical Outlook: JD.com Is A Double Bottom Play

Shares of JD.com are moving higher in the wake of the second-quarter report and will probably continue moving higher in the near-term, the midterm, and long-term.  Today's action helps confirm support at the $62 level and brings a double-bottom into play. If price action continues higher as we expected to do, resistance at the $70 level will become the baseline for the pattern. Once this resistance is broken we would expect to see price action continue moving higher and retrace the pullback all the way up to retest the all-time high near $106 set earlier this year. 

The Bottom Could Be In For JD.com