JD.com Inc (JD, Financial) experienced a daily loss of -5.13% and a 3-month loss of -22.8%. Despite these losses, the company reported an Earnings Per Share (EPS) (EPS) of 1.93. But is the company's stock significantly undervalued? This article aims to answer this question through a detailed valuation analysis. We invite you to read on and discover the intrinsic value of JD.com.
Company Overview
JD.com Inc (JD, Financial) is a leading e-commerce platform. In 2022, its Gross Merchandise Volume (GMV) in China was comparable to Pinduoduo's (GMV not reported), but still lower than Alibaba's. The company offers a wide selection of authentic products with speedy and reliable delivery. JD.com has built its own nationwide fulfillment infrastructure and last-mile delivery network, staffed by its own employees. This supports its online direct sales, online marketplace, and omnichannel businesses.
As of October 12, 2023, JD.com's stock price was $28.79, with a market cap of $45.30 billion. However, the GF Value, an estimation of fair value, stands at $73.86, suggesting that the stock is significantly undervalued.
Understanding the GF Value
The GF Value is an exclusive method to determine the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally trade. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
JD.com's stock shows every sign of being significantly undervalued based on the GuruFocus Value calculation. At its current price of $28.79 per share, JD.com has a market cap of $45.30 billion. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Before buying a company's stock, it's crucial to check its financial strength. Investing in companies with poor financial strength involves a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great ways to understand a company's financial strength. JD.com has a cash-to-debt ratio of 3.22, which is better than 80.55% of 1100 companies in the Retail - Cyclical industry. The overall financial strength of JD.com is 8 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. JD.com has been profitable 4 times over the past 10 years. Over the past twelve months, the company had a revenue of $152.50 billion and an Earnings Per Share (EPS) of $1.93. Its operating margin is 2.63%, which ranks worse than 55.31% of 1112 companies in the Retail - Cyclical industry. Overall, the profitability of JD.com is ranked 5 out of 10, indicating fair profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of JD.com is 19.4%, which ranks better than 82.16% of 1048 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is 2.5%, which ranks worse than 62.04% of 893 companies in the Retail - Cyclical industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, JD.com's return on invested capital is 6.99, and its cost of capital is 5.56.
Conclusion
In conclusion, the stock of JD.com (JD, Financial) shows every sign of being significantly undervalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks worse than 62.04% of 893 companies in the Retail - Cyclical industry. To learn more about JD.com stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
