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Why Stock Rose 26% in May

By Jeremy Bowman – Jun 2, 2020 at 3:16PM

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The Chinese online retailer posted a strong first-quarter earnings report.

What happened

Shares of (JD 5.00%) were moving higher last month as the Chinese e-commerce operator gained even as Chinese stocks faced a delisting threat from the federal government and as it posted a strong first-quarter earnings report. According to data from S&P Global Market Intelligence, the stock finished the month 26% higher. 

As you can see from the chart below, the stock had its biggest gains in the middle of the month as it got an analyst upgrade and delivered better-than-expected first-quarter results.

^SPX Chart

^SPX data by YCharts

So what

JD shares gained in the beginning of the month on broader bullishness as the global economy took steps toward reopening and recovering from the COVID-19 pandemic. On May 13, the stock got a boost when Mizuho upgraded the stock from neutral to buy and raised its price target on the stock from $37 to $58. Analyst James Lee said the company had "significant opportunities" in online pharmacy and other essentials due to the impact of the pandemic, which was causing more retail spending in China to take place online. 

A delivery worker on a motorbike.

Image source:

Shortly after that, the stock rose 4% on May 15 as its first-quarter earnings report came out, and continued to rally from there. Revenue rose 20.7% to $20.6 billion as the company saw strong growth in general merchandise sales, including groceries and pharmacy items. A 38% increase in general merchandise sales is helping the company diversify away from big-ticket items like electronics and appliances. Logistics revenue rose by more than 50% as the company leverages its own delivery service. JD also saw strong user growth in the period with customer accounts growing by 24% and mobile daily active users rising 46%. 

Now what

JD was optimistic about the second quarter and saw e-commerce growth accelerating from the pandemic as Chinese customers get accustomed to ordering things like groceries online. For the current quarter, the company expects revenue growth of 20% to 30%. Considering the company's position as China's leading online retailer, its large distribution network, and the growth potential of e-commerce in China, JD has an appealing long-term growth path in front of it.

Jeremy Bowman owns shares of The Motley Fool owns shares of and recommends The Motley Fool has a disclosure policy.

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