InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Chinese e-commerce giant JD.com Inc(ADR) (NASDAQ: JD ) has seen its stock struggle recently.
But recent concerns surrounding JD stock are unnecessarily short-sighted. As such, if you're a long-term investor, this is an opportunity to buy the dip in a secular growth name.
The story is pretty straightforward. JD stock took a big a leg down after a fourth-quarter earnings miss. But revenues topped expectations. That is why InvestorPlace.com's Dana Blankenhorn said that JD's fourth-quarter earnings release looked a lot like an Amazon.com, Inc. (NASDAQ: AMZN ) earnings release from earlier in the decade. Big revenue growth. Scant profitability. But a long-term opportunity to scale margins dramatically higher on a huge revenue base.
JD stock investors are freaking out about the scant profitability part of that. But investors who freaked out about Amazon's scant profitability early in the decade missed out on a wildly profitably ride.
It's the same thing this time around with JD.com stock. JD is taking a page out of the Amazon playbook. And considering that this is the Chinese Amazon, it is fairly likely that copying the Amazon strategy will result in Amazon-like gains over the next decade.
Here's a deeper look:
JD.com Stock Is Following in Amazon's Footsteps
Over the past decade, Amazon has pioneered this "spend big, grow big" business model that has worked out wonderfully. Essentially, the company takes all of its profits, and invests them back into the business in an attempt to rapidly gain market share. The near-term result is huge revenue growth on marginal profitability.
Then, once Amazon has sufficiently dominated a market and wiped away competitive threats - like it has in domestic retail or the public cloud space - it turns the profit-making engines on. It scales back investment, and margins zoom higher. Importantly, margins zoom higher on a huge revenue base, so profits quickly scale into something massive.
JD.com is doing the same thing.
The Chinese e-commerce giant is eyeing aggressive international expansion (specifically in Europe), making a huge offline retail push (specifically in the grocery market), and investing big in things that will optimize its business model (specifically things like automation and artificial intelligence that could enhance the company's logistics operations).
Those are massive markets. And tapping into them requires significant investment. That is exactly what JD is doing. And it's why profitability remains scant and earnings missed estimates last quarter.
But at this stage in the game (the hyper-growth, market-share-grab phase), profitability isn't what matters. Revenue growth is what matters.
And revenues didn't miss estimates last quarter. They topped expectations. Revenue growth was nearly 40% last quarter, roughly in-line with where it has been the whole year, so growth isn't slowing at all. Moreover, revenue growth is expected to remain above 30% both next quarter and next year.
In other words, this is a big revenue growth company that is maintaining big revenue growth rates. That is what matters. With huge catalysts like international and offline retail expansion still to come, big revenue growth is here to stay for the next several years.
JD is almost identically following in the footsteps of Amazon, with results that mirror Amazon's results from earlier in the decade. That is a favorable comp. Amazon stock is up more than 2,000% over the past decade.
Bottom Line on JD.com Stock
When it comes to JD.com stock, buy now. Hold for the long term.
This is a secular growth company firing on all cylinders. I like the fact that the company isn't satisfied with dominating Chinese e-retail. It wants a piece of the offline retail pie, too. It also wants to expand to Europe, Australia, New Zealand and America. Plus, the company is jumping into tomorrow's biggest growth markets, like automation and AI.
Put it all together, and it's easy to see that JD.com is still in the early innings of its growth narrative. Profitability will come with time, and at some point in the not-too-distant future, this company will be immensely profitable on a huge revenue base.
At that point in time, JD.com stock will be a lot higher than where it currently stands.
As of this writing, Luke Lango was long JD and AMZN.
More From InvestorPlaceCompare Brokers
The post Take Advantage of Recent Weakness in JD.Com Inc(ADR) Stock appeared first on InvestorPlace .