There is renewed optimism that a rebound in China might be underway as the country emerges from its zero-COVID sluggishness. Although JD (JD) stock, which is down 16% year to date, doesn’t currently reflect that optimism, the company’s fundamental are strong.
Ahead of the the company's fourth quarter fiscal 2022 earnings results due out before the opening bell Thursday, investors want to know if now is an ideal time to scoop up some cheap shares. While the Chinese e-commerce giant has made a name for itself by selling electronics, appliances and other consumer items, which accounts for some 50% of its revenues, JD wants to emerge as a leader in the realm of technology and logistics — something reminiscent of Amazon (AMZN).
What’s more, add JD’s growth at JD Mall, combined with its investments in real estate aimed at building out its logistics capabilities, there are still several growth catalysts to be excited about. The company’s competitive advantages have begun to bear fruit. In the most recent quarter, revenues rose 11% year over year, while service revenues increased 42% year over year. Just as impressive, JD’s income from operations surged 235% year over year.
Combined with the Chinese regulators’ eagerness to reopen the country's economy, reversing their long-standing zero-Covid policy, JD’s growth prospects become even more favorable, enabling the company to grow not only its revenues, but also expand its profit margins. As such, a bet on the company's ability to capitalize on China’s reopening looks like a good one. On Thursday, the stock can reverse course if JD can deliver a top- and bottom-line beat and provide confidence outlook for the next quarter and full year.
For the quarter that ended December, Wall Street expects the Beijing-based company to earn 52 cents per share on revenue of $43.05 billion. This compares to the year-ago quarter when earnings came to 33 cents per share on revenue of $38.34 billion. For the full year, earnings are expected to rise 60% year over year to $2.39 per share, while full-year revenue of $151.5 billion will rise 14% year over year.
Although JD is not a household name in the United States, the company is one of China's top-two Business-to-Consumer (B2C) tech giants, Alibaba (BABA) being the other. I referenced the strength of JD’s retail and logistic businesses for a reason: They have shown significant resiliency amid China’s economic slowdown resulting from Covid regulations, with the JD stock falling just 5% over the past year, compared to a 20% decline in S&P 500 index. This underscores the level of strength in its diversified business.
In that vein, JD remains in a strong position to outperform as China’s economy is revived. This was noticeable in the third quarter with the company reporting a better-than 40% surprise on adjusted earnings per share, even as Q3 revenue of $34.2 billion which rose 11.4% year over year, fell short of expectations. The EPS beat was driven by operating margin of 5.2%, which expanded 120 basis point year over year, thanks in part to the company’s shift towards a higher-margin third-party platform business.
Just as impressive, operating cash flow for the twelve months ended September 30 rose 12% year over year, while JD also reported a 6.5% growth in annual active customer accounts to 588.3 million. This shows the level of engagement the company continues to attract, which is help generate advantages with suppliers. On Thursday, the stock will rebound in positive territory if the management can show continued improvement in these areas, while outlining its growth advantages amid the country's reopening and its impact on the economy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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