On Wednesday, the news that JD was liquidated and reduced by Wal Mart, the second largest shareholder, immediately aroused market attention and led to a sharp fall in the share price of JD Hong Kong shares on Wednesday.
On Thursday Eastern Time, JPMorgan Chase quickly released a report to boost confidence among JD's bulls. JPMorgan believes that JD's share price is expected to rebound in the future, because the withdrawal of Wal Mart will not affect the firm fundamentals of JD itself. Meanwhile, JD's valuation is already low enough, which means there is huge potential for upward growth.
The negative impact of Wal Mart clearance is overestimated
On August 21, JD announced the sale of Wal Mart's equity. As of August 20, US time, Wal Mart no longer holds the equity of JD. Previously, Wal Mart held 9.4% of the equity of JD, making it the second largest shareholder of JD. This also means that Wal Mart has made a one-time clearance of its equity in JD.
Earlier that day, there were reports of a significant drop in JD Hong Kong stock prices by 8.73% and JD US stock prices by 4.15% on Wednesday. On Thursday of this week, the stock price of JD Hong Kong rebounded significantly, rising by over 3.5% as of the close, driving the Hang Seng Technology Index up by over 2%.
On Thursday, JPMorgan Chase analysts led by Andre Chang wrote in the report that although Wal Mart's decision was obviously negative in the short term, for JD's core e-commerce business, the previous cooperation with Wal Mart did not bring it too much benefit - in other words, Wal Mart's withdrawal would not cause too much damage to its core business.
Wal Mart also said that JD has always been an important partner. The major reason for Wal Mart's reduction of its holdings in JD is not bad cooperation, but Wal Mart's measures to ease capital pressure and optimize capital allocation.
Analysts also stated that JD's low valuation provides a favorable environment for its outstanding stock price performance. In addition, under the stimulus of the national "trade in" policy for household appliances, JD's revenue growth in the second half of the year is expected to improve.
JD.com has become so cheap that it cannot be ignored
In fact, last Friday, after JD.com released its strong second quarter financial report, JPMorgan Chase just raised its investment rating to overweight, with a target price raised from $33 to $36.
As of the close of trading on Wednesday Eastern Time, JD's US stock price was $27.02. JPMorgan's target price means it expects JD's stock price to have over 33% upside potential.
For Xiao Mo analyst, JD's low valuation is its biggest attraction, and he bluntly stated that JD's stock price is "so cheap that it cannot be ignored". He pointed out, "JD's current valuation is only equivalent to 6.5 times/6 times the expected price to earnings ratio for 2024/25, and the valuation is already close to the low-end of its peers (for example, Vipshop's expected price to earnings ratio is 5.5 times/5 times), which means there is no growth at all. We think this is somewhat exaggerated
And his latest target price corresponds to 8 times the expected price to earnings ratio for 2025. Given the lackluster growth prospects of JD.com, he believes that its expected price to earnings ratio may be difficult to exceed 10 times.
Xiaomo analysts believe that JD's recent strategic adjustments and lower valuation make it expected to outperform the market in the next 6 to 12 months, with a potential upside of over 30%.