If you’re going to invest in China-based e-commerce firm JD.com (NASDAQ:JD), it’s not enough to research the company. JD stock traders should also conduct their due diligence on the nation’s economic and political developments.
There are risks to be aware of, but JD.com earns a “B” rating as conditions in 2023 may provide a runway for growth.
As you’re surely aware, Big Tech fared poorly in the U.S. last year. What about large-cap technology firms in China, though? On-again, off-again Covid-19 lockdowns made it especially difficult for businesses like JD.com to thrive.
China’s tech firms also had to deal with Beijing’s clampdowns on technology-focused businesses due to cybersecurity and antitrust concerns. Despite these challenges, JD.com delivered surprisingly strong results – and just maybe, the shareholders will enjoy a windfall in 2023.
What’s Happening with JD Stock?
Is JD stock cheap or expensive? That’s a difficult question to answer definitively. Certainly, the shares look cheap as they’ve lost substantial value, from $100 in early 2021 to the $60s recently.
Also, JD.com’s price-to-sales (P/S) ratio is 0.81x, which suggests a good value as it’s below 1. On the other hand, JD.com’s trailing 12-month price-to-earnings (P/E) ratio of around 400x might dissuade value investors.
If you’re willing to forgive the inflated P/E ratio, then we can move on to JD.com’s impressive financial performance last year. The company demonstrated surprising resilience with 5.4% year-over-year revenue growth in 2022’s second quarter, followed by 11.4% revenue growth in the third quarter.
That’s not too shabby, considering the issues presented by pandemic lockdowns and tough government-driven regulations.
Less Restrictive Policies in China Should Benefit JD.com
For two long years, Beijing has cracked down on China’s large technology-centered companies. Government entities, such as the Cyberspace Administration of China and the People’s Bank of China (PBoC), have placed JD.com and similar businesses in their crosshairs.
Lately, however, there are signs that the Chinese state is willing to ease some of its restrictions on tech companies. According to a CNN report, Guo Shuqing, the Communist Party leader at the PBoC, assured that the “crackdown on fintech operations of more than a dozen internet companies is ‘basically’ over.”
Could business-friendly conditions exist in China this year? There’s still the risk that policymakers and enforcers will resume their tech-focused crackdowns at any given moment.
Yet, it’s encouraging to hear Shuqing say, “[W]e’ll promote healthy development of internet platforms,” and, “We’ll encourage them to come out strong in leading economic growth, creating more jobs, and competing globally.”
Shuqing didn’t mention JD.com by name in the CNN report. However, it’s easy to connect the dots between more relaxed policies and greater revenue-generation potential for JD.com.
What You Can Do Now
JD.com doesn’t get an “A” rating as it’s difficult or even impossible to predict what China’s government will do next. On the other hand, it looks like Chinese authorities may be prepared to scale back their tech-business crackdown.
Besides, even while business conditions were difficult in China last year, JD.com still managed to demonstrate revenue growth. That’s a good sign, so feel free to try a small position in JD stock, but also be on the lookout for further developments from China’s government.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.