Despite a recent run-up in price thanks to an encouraging quarterly earnings report, JD.com (JD 6.12%) stock is still significantly undervalued. At least, that's the latest take on the company's shares by one analyst tracking the Chinese e-commerce specialist. Let's dig in to find out the reasoning behind this extremely bullish stance.
Price target bump followed pleasing fourth-quarter results
In reaction to those earnings, HSBC prognosticator Charlene Liu made a small change to her price target on JD.com's stock. Granted, it wasn't a major change, but it still implied plenty of upside for the online retailer. Liu added $1 for a new fair value estimate of $39 per share, and maintained her buy recommendation. That $39 is about 38% higher than the stock's price Wednesday.
JD.com notched beats on both the top and bottom lines for its fourth quarter, which were convincing.
Revenue increased by nearly 4% year-over-year to slightly more than $43 billion, while per-share net income was 10% higher at $0.75. Collectively, analysts had been modeling a bit over $42 billion for revenue, and per-share profitability of only $0.63.
With product sales coming in higher than expected for the period, Liu wrote, she's expecting high single-digit growth for both gross merchandise value and revenue this year compared to 2023.
Not the hot economy it used to be
This feels overly optimistic to me. The Chinese economy is under pressure from several directions, including the troubled real estate market and the unpopularity of domestic equities.
Economists are predicting continued slowdown in growth, so in the coming years, the nation's consumers might be less eager to buy goods from the company (despite the ease and convenience of doing so). People spend more freely when they're confident about the economy, conversely they're tighter when that confidence drops.
Given that, $39 might be an ambitious target for a retailer selling to a more dispirited population. I think JD.com will have to outperform to have its stock reach that level, and given the environment, I don't think it has a great chance to do so.
