Quick, what's the first U.S. e-commerce company that comes to mind? Probably Amazon.com, Inc. (NASDAQ: AMZN ), right? Or at least that's probably where you spent most of your money on Cyber Monday.
It's also possible you bought something off of eBay Inc (NASDAQ: EBAY ). But there's no doubt eBay lives in the shadow of Amazon.com these days. In China, the same can be said of JD.Com Inc (ADR) (NASDAQ: JD ) and Alibaba Group Holding Ltd (NYSE: BABA ) - to the detriment of JD stock.
JD Stock Overshadowed by BABA
JD.com and eBay have a lot of similarities. Each is an online marketplace where goods are sold. Each is among the 10 largest internet companies by revenues in its respective country - JD.com is the third largest in China, eBay is the ninth largest in the world. And each often gets overshadowed by a much larger e-commerce entity.
In the past five years, EBAY stock has risen 73%, while AMZN has shot up 292%. During that time, JD stock is up 101%, while BABA is up 352%.
The disparities aren't that surprising given the respective companies' growth trajectories. Alibaba grew sales by 60% in the latest quarter. JD.com's sales improved 39%. Profit-wise, Alibaba is consistently in the black, earning more than a dollar per share last quarter. JD.com has lost money in the last four quarters.
Next year, JD.com's sales are expected to grow at a 30% clip, while Alibaba's are expected to top 53%. And while both companies are expected to grow profits next year, BABA is the far cheaper stock at 26 times forward earnings estimates (versus a forward P/E of 46 for JD stock).
Plus, after the JD stock price more than doubled from $20 in the summer of 2016 to $46 this July, it has since stalled, dipping as low as $37 and now priced around $43. BABA, on the other hand, touched an all-time high of $191 in late November.
Perhaps JD.com's biggest problem is that it doesn't get nearly the same attention Alibaba does here in the U.S. Thanks to Jack Ma, Singles Day and its ties to Yahoo! , Alibaba has become a household name in America.
JD.com? Not so much. Being the second-fastest growing e-commerce company in China doesn't quite have the same ring to it as being the first, especially to American investors. As a result, the institutional ownership percentage in JD stock is 63% (down from 68% in May), while BABA's is 81%.
The bottom line is Wall Street is in love with Alibaba. It's only "in like" with JD.com. It's essentially what happened to eBay. It was the hottest kid on the e-commerce block; then a cooler, hipper kid (Amazon) came along and surpassed it.
Why I'd Still Buy JD Stock
That being said, while JD.com isn't Alibaba, JD is still a darn good stock. It was up over 60% in 2017 (though well short of the 94% run-up in BABA), more than triple the year-to-date gain in the S&P 500 .
Additionally, JD.com's days of inconsistent profits could be in the rearview mirror. The company is expected to earn $0.07 per share in the current quarter and $0.88 per share next year. Plus, when you take out the Alibaba comparison, 30% sales growth is quite good, especially for a company that does more than $50 billion in sales. So the JD.com news is mostly positive.
Will JD.com stock ever be able to keep pace with BABA? Perhaps not. If you only want to invest in one Chinese e-commerce giant, I'd still go with Alibaba. But if you have enough money for two, JD stock is a very solid second choice.
As of this writing, Chris Fraley did not hold a position in any of the aforementioned securities.
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