We came across a bullish thesis on JD.com, Inc. (JD) on Substack by BlackSwan Investor. In this article, we will summarize the bulls’ thesis on JD. JD.com, Inc. (JD)’s share was trading at $40.75 as of March 11th. JD’s trailing and forward P/E were 10.98 and 8.76 respectively according to Yahoo Finance.
JD.com is one of China’s largest e-commerce platforms, competing with Alibaba and Pinduoduo but differentiating itself through a focus on quality and a direct-sales model. Unlike Alibaba’s marketplace approach, JD operates as a retailer, controlling its supply chain and logistics network to ensure product authenticity. This is a major advantage in China, where concerns over counterfeit goods remain high. The company’s emphasis on quality has made it the preferred platform for higher-income consumers, especially for high-ticket items like electronics and home appliances. This strategy has also allowed JD to maintain customer trust and sustain long-term revenue growth, even during economic downturns.
JD’s business model relies heavily on operational efficiency, with a robust logistics network that ensures fast and reliable deliveries. While managing inventory requires additional capital, it provides JD with greater control over its product offerings and minimizes risks associated with third-party sellers. This approach has been crucial in differentiating JD from competitors and solidifying its position as China’s most trusted direct retailer. The company has also been able to sustain revenue growth despite macroeconomic challenges. Although its compounded annual revenue growth rate from 2019 to 2024 was 15%, recent years have shown a slowdown, with growth of 3.7% in 2023 and 6.8% in 2024. Government subsidies for appliance purchases may have contributed to the recent uptick, making it unclear whether this momentum will continue organically.
Profitability remains a key focus for JD, with management emphasizing improvements in operating margins through supply chain efficiencies and disciplined financial management. Over the past five years, JD’s non-GAAP net profit margin has improved from 1.9% in 2019 to 4.1% in 2024. Management believes further margin expansion is achievable, targeting high single-digit levels over the long term. If successful, this could significantly boost free cash flow and enhance shareholder value without requiring additional revenue growth. The company is looking to Amazon’s success as a model, as Amazon’s North American e-commerce business has reached an 8% operating margin, suggesting that JD has substantial room for improvement.
A recent strategic development is JD’s entry into the food delivery market with JD Takeaway, launched in early 2024. While some analysts are concerned about the impact on profitability, JD’s existing logistics capabilities make this expansion a natural fit. The company is positioning its food delivery service as a premium offering, emphasizing food safety and quality, which aligns with its broader brand strategy. This approach could differentiate JD Takeaway from competitors like Meituan and Ele.me, though execution will be key to its long-term success.
JD’s valuation is particularly compelling, given its strong fundamentals and market position. A discounted cash flow (DCF) analysis, assuming a conservative free cash flow growth rate of 5% from 2026 to 2028 and 4% thereafter, with a 9% discount rate, suggests an intrinsic value of $70.54 per ADS. Meanwhile, an earnings-per-share (EPS) approach, assuming a price-to-earnings (P/E) multiple of 15 and a 15% growth rate, results in an intrinsic value of $63.48 per ADS. Weighing these estimates in favor of the DCF model, a fair market valuation of $68.19 per ADS is reasonable. Given JD’s current stock price, this implies significant upside potential.
JD represents a classic value investment opportunity, similar to Alibaba before its recent stock appreciation. While Alibaba’s rally has reduced its attractiveness as a value play, JD remains undervalued and could benefit from renewed investor interest in Chinese equities. Additionally, improvements in JD’s operating efficiency and potential AI-driven cost optimizations could drive further margin expansion and enhance free cash flow. The key risk is China’s broader economic outlook, but with JD’s strong business model, brand trust, and operational advantages, the potential upside outweighs the downside. If JD continues executing on its strategy, the stock could see substantial appreciation in the coming years.
JD.com, Inc. (JD) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 78 hedge fund portfolios held JD at the end of the fourth quarter which was 75 in the previous quarter. While we acknowledge the risk and potential of JD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than JD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.