Market Capitalization: $42.08 Billion
Enterprise Value: $35.40 Billion
Shares Outstanding: 1.46 Billion
Sector: Consumer Cyclical
Industry: Internet Retail
Analysis as of: September 20, 2024

1. Company Overview

JD.com, Inc. is one of China’s leading e-commerce companies, headquartered in Beijing and founded in 2006. The company operates as a supply chain-based technology and service provider, offering a wide range of products through its online platform. JD.com is known for its commitment to authenticity and quality, providing customers with direct access to products from manufacturers and suppliers.

Key aspects of JD.com’s business include:

• Online Retail Platform: Offers electronics, home appliances, apparel, food, books, and more.
• Logistics Services: Owns and operates an extensive nationwide logistics network, providing same-day and next-day delivery services.
• Technology Integration: Utilizes advanced technologies like artificial intelligence, big data, and robotics to enhance operational efficiency.
• Omni-Channel Strategy: Integrates online and offline retail, partnering with brick-and-mortar stores to provide a seamless shopping experience.
• JD Health and JD Logistics: Subsidiaries focusing on healthcare services and logistics solutions, respectively.

JD.com’s mission is to bring the joy of shopping to its customers and to become the most trusted company in the world.

2. Financial Performance

a. Revenue and Growth

• Trailing Twelve Months (TTM) Revenue: $152.09 Billion
• Year-over-Year (YoY) Revenue Growth: +3.30%

Revenue Trend:

• FY 2019: $83.07 Billion
• FY 2020: $106.03 Billion (+27.59% YoY)
• FY 2021: $146.74 Billion (+38.43% YoY)
• FY 2022: $151.14 Billion (+3.00% YoY)
• FY 2023 (Estimated): $152.09 Billion (+3.30% YoY)
• TTM 2024: $152.09 Billion (+3.30% YoY)

Analysis: JD.com has experienced significant revenue growth over the past several years, driven by the expansion of China’s e-commerce market and the company’s investment in logistics and technology. However, the growth rate has slowed down in the recent fiscal years, reflecting market saturation, increased competition, and macroeconomic factors affecting consumer spending in China.

b. Profitability

• Net Income (TTM): $4.28 Billion
• Earnings Per Share (EPS, TTM): $2.72
• Profit Margin: 2.81%
• Return on Equity (ROE): 10.81%
• Return on Assets (ROA): 3.37%
• Return on Invested Capital (ROIC): 5.77%

Analysis: JD.com’s profitability has improved, with net income increasing significantly from prior years. The profit margin of 2.81% is relatively low but acceptable in the retail industry, which typically operates on thin margins. The ROE of 10.81% indicates efficient use of shareholder equity to generate profits. The improvement in profitability can be attributed to better cost management, economies of scale, and growth in higher-margin services.

c. Cash Flow

• Operating Cash Flow (TTM): $10.19 Billion
• Free Cash Flow (FCF): $7.66 Billion
• Free Cash Flow Per Share: $5.23
• FCF Margin: 5.04%

Analysis: JD.com generates strong operating cash flow, reflecting robust core business operations. The free cash flow margin of 5.04% indicates the company’s ability to generate cash after accounting for capital expenditures, which is essential for funding growth initiatives, paying dividends, and reducing debt.

d. Balance Sheet

• Total Assets: $651.64 Billion
• Total Liabilities: $363.69 Billion
• Total Debt: $11.86 Billion
• Cash & Cash Equivalents: $27.78 Billion
• Net Cash Position: $15.92 Billion
• Current Ratio: 1.15
• Debt-to-Equity Ratio: 0.30
• Altman Z-Score: Not provided

Analysis: JD.com has a strong balance sheet with a net cash position of $15.92 billion, indicating substantial liquidity. The current ratio of 1.15 suggests adequate short-term financial strength to cover current liabilities. The debt-to-equity ratio of 0.30 reflects moderate leverage, and the company’s substantial cash reserves provide financial flexibility.

3. Valuation

• Price-to-Earnings (PE) Ratio (TTM): 10.56
• Forward PE Ratio: 6.96
• Price-to-Sales (PS) Ratio: 0.29
• Price-to-Book (PB) Ratio: 1.39
• Price-to-Free Cash Flow (P/FCF) Ratio: 5.49
• PEG Ratio: 0.54
• Enterprise Value (EV): $35.40 Billion
• EV/EBITDA: 6.03
• EV/EBIT: 7.59

Analysis:

• PE Ratios: The trailing PE ratio of 10.56 and forward PE of 6.96 indicate that JD.com is trading at a low multiple relative to its earnings, suggesting potential undervaluation.
• PS Ratio: A PS ratio of 0.29 is low, indicating that the stock is trading at a fraction of its annual sales per share.
• PB Ratio: The PB ratio of 1.39 suggests the stock is trading close to its book value, which may indicate undervaluation, especially considering the company’s growth prospects.
• PEG Ratio: A PEG ratio of 0.54 (below 1) implies the stock may be undervalued relative to its expected earnings growth.
• EV Multiples: Low EV/EBITDA and EV/EBIT ratios support the notion that JD.com may be undervalued compared to its peers.

Conclusion: The valuation metrics suggest that JD.com might be undervalued, presenting a potential opportunity for investors. The low multiples could be due to market concerns over China’s economic outlook, regulatory environment, and competitive pressures.

4. Market Performance

• Current Stock Price: $28.74
• 52-Week Range: $20.82 – $35.69
• 52-Week Price Change: -6.20%
• Beta: 0.40
• Average Volume (20 Days): 14,259,770
• Relative Strength Index (RSI): 65.46
• Dividend Yield: 2.58%

Analysis: Over the past year, JD.com’s stock price has decreased by 6.20%, underperforming relative to the broader market. The low beta of 0.40 indicates lower volatility compared to the overall market, making it potentially attractive to risk-averse investors. The RSI suggests that the stock is approaching overbought territory, which may lead to short-term price consolidation.

5. Financial Health and Risks

a. Liquidity

• Current Ratio: 1.15
• Quick Ratio: 0.81

Analysis: JD.com’s liquidity ratios indicate that the company can meet its short-term obligations. The current ratio above 1 is acceptable, but the quick ratio below 1 suggests that without inventory, the company’s liquid assets may not fully cover current liabilities.

b. Leverage

• Debt-to-Equity Ratio: 0.30
• Debt-to-EBITDA Ratio: 1.54
• Interest Coverage Ratio: 11.58

Analysis: The company’s leverage is moderate, with a debt-to-equity ratio of 0.30. The debt-to-EBITDA ratio of 1.54 indicates manageable debt levels relative to earnings. An interest coverage ratio of 11.58 shows that JD.com comfortably covers its interest expenses with its operating income.

c. Operational Risks

• Competitive Landscape: The Chinese e-commerce market is highly competitive, with major players like Alibaba and emerging companies vying for market share.
• Regulatory Environment: Changes in government regulations, particularly regarding data privacy, antitrust laws, and foreign investment, could impact operations.
• Supply Chain and Logistics: Reliance on efficient logistics is crucial. Any disruptions could adversely affect customer satisfaction and profitability.
• Margin Pressure: Operating in a low-margin industry, JD.com faces constant pressure to control costs while investing in growth initiatives.

d. Market Risks

• Economic Conditions: China’s economic growth rate affects consumer spending. A slowdown could impact sales.
• Currency Risk: Fluctuations in the Chinese yuan against the US dollar can affect financial results reported in USD.
• Geopolitical Tensions: Trade tensions between China and other countries may impact investor sentiment and business operations.

e. Dividend Policy

• Dividend Per Share: $0.74
• Dividend Yield: 2.58%
• Payout Ratio: 27.19%
• Dividend Growth (YoY): 23.33%

Analysis: JD.com has started paying dividends in recent years, with a payout ratio of 27.19%, indicating a balanced approach between returning capital to shareholders and retaining earnings for growth. The dividend yield of 2.58% provides an additional return for investors.

6. Conclusion and Investment Considerations

Pros:

• Strong Market Position: JD.com is a leading player in China’s e-commerce market, with a vast customer base and extensive logistics network.
• Growth Potential: Continued urbanization and increasing internet penetration in China provide opportunities for growth.
• Financial Strength: Solid balance sheet with substantial cash reserves and manageable debt levels.
• Attractive Valuation: Low valuation multiples suggest potential undervaluation, offering upside potential for investors.
• Dividend Income: Initiation and growth of dividends enhance shareholder returns.

Cons:

• Slowing Revenue Growth: Recent years have shown a deceleration in revenue growth, which may concern growth-focused investors.
• Regulatory Risks: Increased scrutiny from Chinese authorities on tech companies could lead to operational challenges and fines.
• Competitive Pressure: Aggressive competition may lead to margin compression and require increased spending on marketing and innovation.
• Economic Uncertainty: Macroeconomic factors, including potential economic slowdown in China, could impact consumer spending.

Investment Outlook

The company’s strong market position, extensive logistics network, and technological capabilities provide a solid foundation. The attractive valuation metrics and dividend yield may appeal to value and income investors.

However, investors should be cautious of the potential risks associated with regulatory changes, competitive pressures, and macroeconomic uncertainties in China. The slowing revenue growth rate may also impact the company’s long-term growth prospects.

Recommendation: JD.com may be suitable for investors with a moderate to high-risk tolerance seeking exposure to China’s consumer market and e-commerce sector. It is advisable to monitor developments in the regulatory environment and the company’s strategic initiatives to sustain growth.

Disclaimer: This analysis is for informational purposes only. It does not constitute investment advice. Investors should conduct their own research or consult with a financial advisor before making investment decisions.