We came across a bullish thesis on (NASDAQ:JD) on ValueInvestorsClub by Ares. In this article, we will summarize the bulls’ thesis on JD. The company’s shares were trading at $26.00 when this thesis was published, vs. the closing price of $35.34 on Jan 03.
An employee at an entertainment retail storefront stocking new and pre-owned movies.
JD is a supply chain-based technology and service provider in China. The company offers computers, consumer electronics products, home appliances; and general merchandise products comprising food, beverage, baby and maternity products, furniture and household goods, cosmetics, pharmaceutical, healthcare products and jewelry. It also provides online marketplace services.
The post-Covid recovery has been slow for JD due to a weak Chinese market. To add to it, tough competition from Alibaba and Pinduoduo has meant that the capex on logistics and infrastructure has not materialized into revenue growth. Revenue has actually contracted in 2023 by 1.1% and by 0.7% y-o-y in Q2-24. EBITDA margins have been unstable ranging from 2% to 4.1% in the last five years. While the retail segment is lagging, the revival in JD’s revenue is expected to be fueled by the Logistics business. Expected growth in this segment is 8-12%, with an overall consensus growth of 4.7% towards JD’s overall business. Margin expansion should increase EBITDA margin to 5.1% from 3.9% in 2023.
The current share price is a reflection of only the liquid assets which is worth $28 per share. The company has acknowledged the undervaluation of its stock by proceeding with an aggressive buyback program. In 2024, it has purchased 7.2% of ADS in just 5 months, spending a total of almost $3 billion. This amount was allocated for a 5-year period but the attractive valuation prompted the management to expedite the program.
The intrinsic value of the share after accounting for better growth, margin expansion and base-case EBITDA multiple of 5x is $56. This provides an upside potential of almost 60% from its current level. The downside is limited since it has a liquid position worth $28/share.
While we acknowledge the potential of JD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than JD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.