Over the past three months, Alibaba's (NYSE:BABA) stock has tumbled more than 20% as the Chinese tech giant faced unprecedented challenges.

In November, Ant Group's long-awaited IPO was abruptly suspended after Jack Ma, the fintech company's founder, criticized China's banking system. Ma, who co-founded Alibaba and previously served as its CEO and executive chairman, subsequently disappeared from public view. Shares of Alibaba, which owns a 33% stake in Ant, dropped after those unexpected developments.

In December, Chinese regulators delivered two more blows. First, they fined Alibaba for its unapproved takeover of the department store chain InTime Retail, which could derail its future brick-and-mortar plans. Second, they launched an antitrust probe into Alibaba's e-commerce business over its pricing strategies and exclusive deals with merchants.

Alibaba's corporate campus in Hangzhou.

Image source: Alibaba.

To make matters worse, the U.S. passed a new law that would force American exchanges to delist any foreign companies that didn't comply with U.S. auditing rules for three consecutive years. The Trump administration is also reportedly mulling an investment ban on Alibaba and Tencent over their alleged ties to the Chinese military.

Value-seeking investors might be tempted to buy Alibaba right now, since it looks historically cheap at 18 times forward earnings. However, I believe it's smarter to buy its biggest e-commerce rival, JD.com (NASDAQ:JD), for three simple reasons.

1. No antitrust drama

JD controlled 17.1% of China's e-commerce market in 2020, according to eMarketer, while Alibaba held a 56% share. The firm expects JD's share to grow to 18.1% this year, as Alibaba's share rises to 56.6%.

Alibaba, JD, and Pinduoduo (NASDAQ:PDD) -- which ranks third -- are all expected to continue growing as the smaller players keep shrinking. However, JD and Pinduoduo don't face any antitrust heat like Alibaba.

Instead, JD and Pinduoduo sparked the antitrust probe against Alibaba. JD claims Alibaba's exclusive deals with clothing brands smothered its apparel business three years ago, while sellers claimed Alibaba removed their listings if they listed the same products on Pinduoduo.

JD owns a fintech subsidiary, JD Digits, but it mainly offers consumer loans and supply chain financing services. It doesn't own a dominant consumer-facing platform like Ant's Alipay or Tencent's WeChat Pay, so it probably won't be targeted by antitrust regulators. JD's cloud platform is also much smaller than Alibaba's market-leading cloud platform, which currently faces scrutiny in the U.S. over its alleged ties to the Chinese military.

2. A higher-quality business model

Alibaba's two largest marketplaces, Taobao and Tmall, are mainly paid listing platforms for brands and merchants. They don't take on any inventories, and only help fulfill orders via its Cainiao logistics subsidiary.

JD is a first-party retailer that takes on inventories and fulfills its own orders. Its logistics network covers nearly all of China with fulfillment centers in seven cities, front distribution centers in 31 cities, and over 800 warehouses nationwide. That network is becoming increasingly automated with warehouse robots, driverless delivery vehicles, and drones.

JD's business model is much more capital-intensive than Alibaba's, but that insulates its shoppers from counterfeit products. That's why JD isn't on the U.S. Trade Representative's "notorious markets" list for counterfeit marketplaces -- while Taobao and Pinduoduo are.

3. Robust growth rates at a reasonable price

JD generated robust double-digit revenue growth over the past year as its growth in annual active customers accelerated.

Growth (YOY)

Q3 2019

Q4 2019

Q1 2020

Q2 2020

Q3 2020

Revenue

28.7%

26.6%

20.7%

33.8%

29.2%

Annual Active Customers

9.6%

18.6%

24.8%

29.9%

32.1%

YOY = Year over year. Source: JD.com.

The company attributed that growth to robust sales of general merchandise, consumer electronics, and home appliances, as well as its ongoing expansion into lower-tier cities, which accounted for roughly 80% of its new shoppers last quarter.

JD's margins are also expanding as economies of scale reduce its infrastructure expenses and the costs of acquiring new shoppers. Furthermore, the expansion of JD Logistics as a third-party service for other companies is also boosting the capital-intensive segment's margins.

As a result, analysts expect JD's revenue and earnings to rise by 39% and 60%, respectively, this year. Next year, they expect its revenue and earnings to grow another 23% and 41%, respectively -- but those estimates could actually be too conservative if Chinese regulators continue their crackdown on Alibaba.

JD's stock more than doubled in price over the past 12 months, but it still looks surprisingly cheap at 38 times forward earnings and less than one times next year's sales. Alibaba remains cheaper than JD relative to its earnings, but it's pricier relative to its revenue at over four times next year's sales.

The bottom line

JD is still vulnerable to the new auditing requirements in the U.S., but the company still has three years to comply with those demands. Meanwhile, JD won't face any of the other regulatory headwinds that are hurting Alibaba, and it's still generating robust growth at a reasonable price.

 
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.