JD Stock A BUY! Looks a lot like Value! NASDAQ: JD

Good day fellow investors. I continue to look at this overlooked Chinese potential value investment place and JD starts to look a lot like value. The very interesting thing here is that the stock is public for already 12 years and it's up just 36%. You would say it must be a terrible business. Well, look at this. the revenue is more than 10x over that period. Imagine somebody telling you, look, this business will be at 10x over the next 10 years, but your return will be close to zero. Can you imagine that? Well, that's also what I'm discussing with AI. All these companies might grow their revenues significantly, but if there is too much competition, the profits might not grow alone or not as expected in relation to the current price. And that is exactly when this happens. And then we value investors start to look at these things because everyone is fed up, gave up on the growth, on the promises. And then you start looking at cash situations, 50% of the market cap in cash, which is crazy. By the way, for reference and context, my name is Sen. I have a value investment research platform. We are looking for value, margin of safety, security, trying to minimize risk and then trying to achieve some return but first focusing on risk. There are two very interesting situations that I just updated on my research platform. You might want to check it in the link in description below. Let's go to JD appliances e-commerce in China. They are now entering into food deliveries. And look at this. Not the small bicycles that we have. immediately food for the whole factory. The Chinese are efficient. They are also expanding now entering e-commerce in Europe and they are very famous for their logistics. When I saw this picture, I said, "Whoa, that's really something. Pause the video, stick with it, and you will see why it is important." Nevertheless, revenues still 11% growth in retail, 24% growth in logistics. They are entering the food businesses worldwide and 214% growth there but they are losing money there. So they are investing a lot in that new business segment. The retail is stable, the logistics are stable but the new businesses are weighing on the profitability on the margins and that's why also the stock is down because investors don't know when this will return to positive margins and things like that. The risk is this. Ricardo Pini went recently to China and wrote a great comment. I've never seen more competition in my life. Every service had 10 players in the same city. Insane. He sticks to 10 cent because it doesn't suffer from competition yet. JD is competitive. However, the logistics part might add some mode as the others are not investing as JD invested. Cash flows are also down but because of the investments in all the and the lower profits. I usually don't look because I assume things are stable with these numbers but inventories are a little bit up accounts payable stable and accounts receivable perhaps of the new business models are going up a little bit but interesting to see on the competition in China. The government also got fed up recently and said that they should not do things that are too much price wars that they need to have healthy markets. And when the government usually says something like that, the companies change and we might see that down the road in the earnings reports. Not yet in this one. However, near-term decline reflects their investment in food delivery. But this is a lot of billions in cash that they have on the balance sheet. I looked a little bit at the balance sheet. Very strong. Imagine buying e-commerce Amazon at 1.4 book value. They have some debt, but it's nothing compared to the cash. Now, of course, this is China. There is always risks. China is the risk. Trump says something you cannot invest there. You lose your money. Consumer has been volatile in China can always get into a recession, stop spending and you see a decline. Competition is there. That's a certainty. What will they do with the cash? Can they send it out to you? Not that fast. That's why they have a lot of it. On the reward, the P ratio is 10 on the retail. You have all the upside from the other businesses for free practically. And also these businesses are listed and practically the market capitalization of the listed businesses is equal to JDS. So practically the retail or something is priced for free. Whether they have a mode or not in some segments in logistics likely. Now when it comes to investing we can always ask the question where will JD be in 10 years? Will it be Europe? Yes, likely they're entering. But all these adventures you never know. If it doesn't work they just close it. They do something else. That's the nature of the business. Stronger position in China in 10 years. That is also something we have to see. That is the risk and reward. New earnings are coming on the 5th of March. I will see. And if the stock price is lower or not, I will update on my research platform and see whether I will add this on the diversified portfolio. For now, I think this is value. You have to see how it fits your portfolio. If it's covered on my research platform after March, I will not discuss it publicly anymore. If the stock goes up, everything is great, I didn't buy it, then I might do an update video. That's how it works. Check my research platform. See you in the next video.

Key Concepts

• Value Investing: An investment strategy focused on identifying undervalued companies with a margin of safety.
• Margin of Safety: The difference between the intrinsic value of an asset and its market price.
• Book Value: The net asset value of a company, calculated as total assets minus total liabilities.
• P/E Ratio (Price-to-Earnings Ratio): A valuation ratio of a company’s stock price to its earnings per share.
• E-commerce: The buying and selling of goods and services over the internet.
• Logistics: The detailed organization and implementation of a complex operation.
• Cash Flow: The net amount of cash and cash-equivalents moving into and out of a company.

JD.com: A Potential Value Investment Opportunity

This analysis, presented by Sen, a value investor and researcher, focuses on JD.com (JD), a Chinese e-commerce company, as a potentially undervalued investment. The core argument is that despite significant revenue growth, JD’s stock performance has been remarkably low, presenting a potential opportunity for value investors.

1. Historical Performance & Revenue Disconnect

JD.com has been a publicly traded company for 12 years, yet its stock has only increased by 36%. This is contrasted with a tenfold increase in revenue over the same period. Sen highlights the anomaly: a company achieving substantial revenue growth with minimal stock return. He draws a parallel to the current situation with Artificial Intelligence (AI) companies, suggesting that high revenue growth doesn’t necessarily translate to proportional profit growth due to intense competition.

2. Current Financial Situation & Cash Reserves

JD currently holds approximately 50% of its market capitalization in cash. This substantial cash reserve is viewed as a significant positive, providing a buffer against risks and potential for future investments or shareholder returns. The balance sheet is described as “very strong,” with the potential to acquire an e-commerce company like Amazon at a 1.4 book value.

3. Business Expansion & Growth Areas

JD is actively expanding into new business areas:

• Food Delivery: A significant investment area, currently operating at a loss but demonstrating 214% growth. The video showcases JD’s large-scale food delivery infrastructure in China.
• European E-commerce: JD is entering the European market, leveraging its established logistics capabilities.
• Logistics: JD is renowned for its logistics network, which is seen as a potential competitive advantage. Retail revenue growth is at 11% and logistics at 24%.

4. Risks & Challenges

Several risks are identified:

• Intense Competition: Ricardo Pini’s observation of “insane” competition in China, with 10 players in every service sector, is a major concern. While JD is competitive, the market is saturated.
• Chinese Economic & Political Risks: The inherent risks associated with investing in China, including potential political interference (e.g., actions by the US government) and economic volatility (potential recession and decreased consumer spending).
• Profitability Concerns: The investments in new business segments, particularly food delivery, are currently impacting profitability and margins. Investors are uncertain about the timeline for achieving positive margins.
• Cash Utilization: Uncertainty regarding how JD will utilize its substantial cash reserves.

5. Government Intervention & Market Dynamics

The Chinese government has recently expressed concern over excessive price wars and is pushing for healthier market conditions. Sen suggests this could lead to positive changes in company behavior and earnings reports.

6. Financial Metrics & Valuation

• P/E Ratio (Retail): A P/E ratio of 10 is noted for the retail segment.
• Market Capitalization: The market capitalization of JD’s listed businesses is roughly equal to JD’s overall market capitalization, implying the retail business is currently priced at or near zero.
• Inventory, Accounts Payable & Receivable: Inventories are slightly up, accounts payable are stable, and accounts receivable are increasing, potentially due to the new business models.

7. Future Outlook & Investment Strategy

Sen poses the question of where JD will be in 10 years, acknowledging the uncertainty of its expansion into Europe and the potential for business closures if ventures fail. He anticipates a stronger position in China but recognizes this is not guaranteed. He plans to monitor the upcoming earnings report on March 5th and update his research platform accordingly, potentially adding JD to a diversified portfolio if the stock price remains attractive.

8. Notable Quotes

• “Imagine somebody telling you, look, this business will be at 10x over the next 10 years, but your return will be close to zero. Can you imagine that?” – Sen, illustrating the disconnect between revenue growth and stock performance.
• “China is the risk.” – Sen, succinctly summarizing the geopolitical and economic risks associated with investing in the country.
• “You have all the upside from the other businesses for free practically.” – Sen, highlighting the potential undervaluation of JD’s diverse business segments.

Logical Connections

The analysis progresses logically from identifying a potential undervaluation based on historical performance to a detailed examination of the company’s current financial situation, growth strategies, and associated risks. The discussion of competition, government intervention, and financial metrics all contribute to a comprehensive assessment of JD’s investment potential.

Conclusion

Sen presents JD.com as a compelling value investment opportunity, characterized by significant revenue growth, a substantial cash reserve, and a potentially undervalued stock price. However, he emphasizes the inherent risks associated with investing in China, including intense competition, economic volatility, and political uncertainty. The upcoming earnings report on March 5th will be a crucial factor in determining whether JD fits into his diversified portfolio. The core takeaway is that JD presents a classic value investing scenario: a company with strong fundamentals trading at a price that may not fully reflect its potential.