What happened
Shares of JD.com (JD 6.12%) were down 3.8% as of 11:25 a.m. ET on Friday after several analysts updated their outlook for the company.
Morgan Stanley analysts downgraded the stock and lowered their price target to $33 from $55. The firm believes weak consumer spending could impact JD.com's growth for longer than investors expect.
So what
JD.com was a high-growth business through 2021, but in the last few years, COVID-related disruptions have hurt China's economy. JD.com's second-quarter revenue increase of 8% year over year was well off its 36% annual average of the last 10 years. While it made up for this with improving margins, the slowing top-line growth has weighed on the stock.
To counter that trend, JD.com has invested heavily in offering lower prices. Its low-price program is resonating with customers, but Morgan Stanley is concerned this initiative might fizzle out and fail to deliver enough growth to offset the negative consumer spending trends.
Now what
There are several headwinds that are impacting retailers right now, such as rising interest rates and inflation. Investors should tread carefully in choosing what stocks to buy in this environment, but they should remember that valuations for some stocks already account for low growth expectations. This sets up a buying opportunity.
It's worth noting that 90% of the analysts who cover JD.com still have buy ratings on the stock. It is a profitable business with a vast fulfillment network of over 1,600 warehouses. Its long-term position for growth could be underestimated, with the stock trading at a forward price-to-earnings ratio of just 9.
