Who will be a beneficiary of China’s reopening?
JD.com
JD
is one of China’s largest online retailers. This Zacks Rank #1 (Strong Buy) is expected to grow earnings by the double digits in 2023.
JD.com describes itself as a “leading supply chain-based technology and service provider”. But most of us know it as one of China’s largest online retailers.
It’s website says that its retail infrastructure allows consumers to “buy whatever they want, whenever and wherever they want it.” It has multiple divisions including JD Retail, JD Health, JD Logistics and JD Industry. JD Retail continues to be its largest division, by revenue.
Another Beat in the Third Quarter
On Nov 18, 2022, JD.com reported third quarter 2022 results and beat on the Zacks Consensus Estimate again. Earnings were $0.88 versus the Zacks Consensus of $0.64.
But JD.com has an incredible track record of beating. It’s last miss was all the way back in 2018 and that includes the coronavirus pandemic quarters and even this year, with China’s Zero Covid policy.
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But JD.com hums along.
Revenue rose 11.4% year-over-year to $134.2 billion with net service revenues up 42.2% to $6.5 billion compared to a year ago.
However, cost of revenue rose 10.5% year-over-year to $29.1 billion.
Free cash flow, for the 12 months ended Sep 30, 2022 was $3.6 billion.
“JD.com’s focus on efficiency across various businesses helped drive healthy growth even when the industry continued to face significant challenges,” said Lei Xu, CEO.
Analysts Raise Earnings Estimates
It’s been a tough year for Chinese companies as China’s Zero Covid policy has slowed the Chinese economy. But, it appears that the government is loosening the COVID regulations. This should mean better days ahead for Chinese companies.
One analyst has raised estimates in the last 30 days for both 2022 and 2023.
The 2022 Zacks Consensus Estimate has risen to $2.31 from $2.22 in the last month. This is earnings growth of 36.7% compared to 2021 where earnings came in at just $1.69.
The 2023 Zacks Consensus Estimate has also moved higher. The Zacks Consensus has risen to $2.71 from $2.60 in the last 2 months. That’s another 17.3% earnings growth.
Shares Under Perform the Last 5 Years
After the Great Recession, the investing strategy was that there was no better place to be than in Chinese stocks as they were in the early stages of growth.
But in the last five years, JD.com shares have struggled against even the NASDAQ QQQ benchmark. JD.com is up 40.4% versus the QQQ up 73.9% in that time.
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This year, the shares have struggled as well, falling 19.2% year-to-date, but they’ve bounced in recent weeks due to the changes to China’s Zero Covid policy.
However, shares still aren’t cheap, on a P/E basis. It trades with a forward P/E of 24.5. And there is no dividend for shareholders either.
But if you’re looking for a play on the China reopening, JD.com is one to keep on the short list.
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