When it comes to investing and diversification, you can look to add Chinese stocks to your portfolio. The Chinese economy has been one of the fastest growing ones for three decades and there is enough steam left in companies such as JD.com (NASDAQ: JD) to create massive investor wealth in the upcoming decade.
JD.com has seen a prolonged phase of growth since the beginning of 2020. Year-to-date, the stock has soared 92% and investors have been highly optimistic about it. In June, JD.com stock climbed 10.8% and outperformed the broader S&P 500 index on the back of its secondary listing on the Hong Kong stock exchange as well as robust sales during China’s holiday season. In July, the stock surged ahead to hit an all-time high of $69.18.
Since the last week, there was buoyancy surrounding the stock because of its second quarter results. JD.com surged 17% since August 14 and its immensely upbeat Q2 numbers justified the climb.
Robust financials underpin the growth
The e-commerce giant’s net revenue jumped 34% year-on-year (YoY), while its adjusted earnings per share stood at $0.50. The revenue and earnings both beat market expectations. At the end of the quarter, JD’s annual active customers rose nearly 30% to reach 417.4 million.
Meanwhile, the company’s mobile daily active users increased 40%. As China is emerging from the COVID-19 crisis, JD witnessed huge demand from general merchandise and grocery. This in turn led to the company’s better-than-expected results.
The company’s CFO, CFO Sandy Xu stated, "Our scale advantages and cost efficiency enabled us to provide attractive prices during our June 18 sales promotions, benefiting consumers and society as China's economy emerges from the difficult pandemic period, and helped drive solid top and bottom line results for the second quarter,"
Owing to its listing on the Hong Kong Stock Exchange, the company is bound by certain common practices followed by public companies. Therefore, JD refrained from providing any guidance for its future performance.
Analysts upbeat about the stock, boost price target
Following the upbeat result, Goldman Sachs (NYSE: GS) placed JD on its Conviction Buy List. The research firm also raised its price target on the stock to $85 from $73. This indicates an upside potential of nearly 27% from its current level.
According to Ronald Keung, the analyst from Goldman Sachs, consumer discretionary spending and margin expansion will boost JD stock. He also believes that its subsidiaries are also attractively valued. Keung said, JD Health, JD Logistics and JD Digits have become "more viable".
Besides Goldman Sachs, Wendy Huang from Macquarie also raised her rating on JD stock to Buy from Hold.
Strategically placed to reap benefits of economy re-opening
China is on path to put the pandemic behind it and open its economy for full-fledged business, and JD.com can only gain from it. Its rapidly growing e-commerce business that has also invested in areas like healthcare and logistics has immense growth prospects and is one of the most trusted brands in China after Alibaba (NYSE: BABA). JD.com’s robust logistics network with over 700 warehouses and order fulfilment infrastructure puts it in a different league altogether.
Its limited exposure to the saturated garment segment is a strategic move. In the first quarter JD also ventured into delivering local agricultural produce and traditional Chinese medicines recognizing its untapped potential.
JD.com has a reliable business model and trades at a reasonable valuation. However, due to the escalating issue between the US and China, Chinese companies always face a risk of getting delisted. If we can keep those worries on hold for the time being, JD.com offers immense value to investors with long-term perspective.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
