Chinese e-commerce giant JD stock (NASDAQ:JD) reported strong fourth-quarter results, indicating that its new initiatives are meaningfully boosting its business. Meanwhile, the valuation of JD stock is extremely low, while I believe that investors are significantly underestimating the strength of the Chinese economy. Finally, the firm’s huge share buyback initiative suggests that JD.com is confident in its own outlook and should lift the shares over the longer term.
Given these points, I’m bullish on the company’s long-term outlook. Value investors looking for exposure to developing countries and/or e-commerce plays should consider buying JD stock.
Strong Fourth-Quarter Results and a Very Attractive Valuation
JD’s Q4 earnings per share came in at 2.13 Chinese yuan, up from 1.91 Chinese yuan in Q4 of 2022 and its Q4 EBITDA climbed an impressive 8.6% year-over-year to $1.4 billion. Moreover, its revenue increased 3.6% year-over-year to 306.1 billion Chinese yuan.
On JD’s Q4 earnings call, CEO Rax Xu reported that in 2023 it “stayed focused on constantly improving (the) user experience, lowering costs and increasing efficiency.” Xu indicated that its focus on users’ experience had enabled it to obtain many new users who were spending a relatively large amount of money on the platform, and the CEO stated that the firm’s “user momentum” had accelerated in Q1. Also noteworthy is that, in Q4 and all of 2023, the average amount of time spent by each user on the platform had increased. Finally, Xu reported that the firm’s “order volume” had climbed by “double-digit” percentage levels in Q4 versus the same period a year earlier.
Taken together, this data makes me confident that JD’s performance is improving while the outlook of its e-commerce business is strong.
On the valuation front, the shares have a very low forward price-earnings ratio of eight times. Moreover, its price-sales ratio of 0.27 times is even more miniscule. The company’s valuation is especially attractive because analysts, on average, expect its earnings per share to rise to $3.15 this year from $3.06 last year before increasing to $3.54 in 2025.
Underestimating the Chinese Economy and Gauging the Impact of JD.com’s Share Buybacks
Much of the Street has been quite bearish on China’s economy in recent months. And indeed, there are reasons to be cautious about its outlook. Specifically, the country’s GDP increased just 1% in Q4 of last year versus Q3, while its residential real estate sector has major problems and many U.S. firms, including Apple (NASDAQ:AAPL), are moving portions of their supply chains out of the East Asian country.
Still, in past columns, I’ve noted that these Chinese government’s stimulus efforts have generally worked well over the years, making me confident that it can repeat the feat during the current cycle. And my prediction appears, at least to some extent, to be proving accurate as China’s GDP did increase at a 5.2% annual rate in Q4, up from a 4.9% gain in Q3. Moreover, in Q1, its GDP growth accelerated further, reaching 5.3%.
According to The New York Times, the country’s investments in its manufacturing sector helped boost its economic growth last quarter. Also noteworthy is that the nation’s retail sales expanded at a 4.7% annual clip in Q1. While The Times characterized the latter increase as “modest,” I view it as rather impressive, particularly given widespread concerns about the country’s economy.
Of course, all of this generally positive economic data in general and the country’s strong retail sales growth in particular will likely boost JD.com
Also likely to lift JD’s shares are its large share buybacks. The company bought back roughly $500 million of its shares last quarter, and it has $2.5 billion remaining on its share buyback initiative which expires in March 2027. JD’s large buybacks also indicate that the company has performance in the outlook of its own shares.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines