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Why JD.com Inc. Stock Lost 17% Last Month

By Jeremy Bowman - Oct 2, 2018 at 2:29PM

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Shares of the Chinese e-commerce giant slipped on the surprising arrest of its CEO.

What happened 

Tough times continued last month for JD.com Inc. ( JD -3.54% ) as shares of the Chinese e-commerce giant fell on ongoing concerns about the recent arrest of CEO Richard Liu and a simmering trade war between China and the U.S. According to data from S&P Global Market Intelligence, the stock finished September down 17%, and the stock hit two-year lows on the pullback.

As you can see from the chart below, the stock fell sharply at the beginning of the month as news broke about Liu's arrest and stayed down from there.

JD Chart

JD.com data by YCharts.

So what

Shares of JD fell 16% over the first two sessions of the month as investors tried to make sense of Liu's arrest. The JD.com founder and CEO was arrested on the night of August 31 after dinner with colleagues on a business trip. He was accused of rape by a young Chinese student but was allowed to return to China the following day.

JD.com founder Richard Liu making deliveries.

JD.com founder Richard Liu making deliveries. Source: JD.com.

While JD.com has maintained that the accusation was false, the case remains open. The fact that Liu was allowed to return to China would seem to indicate that he is no longer a suspect in the case. Still, the charge might have damaged Liu's reputation in China, where he is well known, and Liu also maintains tight control over the company, as the board is not even allowed to meet without him. Should he be forced out of the leadership or indicted for a crime, it would clearly cast doubt on JD's future, especially as the company is in the midst of a huge expansion, having sacrificed profits for the last several quarters.

Through the remainder of the month, JD shares remained down on lingering concerns about Liu's status and on saber rattling in the trade war between China and the U.S.

Now what 

With the stock now hovering near a two-year low, JD.com looks undervalued. The company is putting up solid growth, and the Chinese economy is still rapidly expanding. Barring an unforeseen twist in the arrest saga, the incident is likely to be forgotten. I'd take the opportunity to scoop up some shares of JD.com while they're still cheap.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

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