JD.com is a tech-driven, ecommerce company that strives to be China’s largest supply-chain-based service provider. Based on the total sales of 2020, this company was the biggest retailer in China, according to Fortune Global 500. JD believes that the company’s market leadership and size is a result of its superior customer experience, operational efficiency and its commitment to investing long-term in technology and logistic infrastructure.

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Investors often refer to the company as “Amazon (NASDAQ: China)” because of its phenomenal e-commerce growth rate and high-quality logistics infrastructure. The company’s excellent network and exceptional customer experience is evident in the rapidly expanding customer base that has grown over recent years. JD had 305.3 Million, 362.0 Million, and 471.9 Mio. annual customer accounts, in 2018 and 2020.

The problem is, JD, being a Chinese-owned company, has been suffering lately due to China’s crackdown against big tech. Due to this, JD’s stock fell from the past peak of $108, down to about $78 in today’s writing. Although investors need to be aware of ongoing issues, I feel that overall market risks are likely exaggerated. This is what I discussed in my most recent Alibaba You can find the article (NYSE:) here.

While there may be risks associated with Chinese equities, which include little to no shareholder influence over how businesses are managed, I believe there are still many opportunities to take advantage of the current slide. It has experienced rapid growth and the current value does not reflect its future potential.

JD Q2 results were quite strong, in spite of ongoing worries. JD’s revenues rose 26% year-over-year from RMB201 billion in Q2-2020 to RMB254 billion in Q2 2021. For the quarter, JD’s non-GAAP adjusted net profit declined by around 22%, from RMB5.9 billion to RMB4.6 billion. Investors shouldn’t be alarmed, however, because JD intentionally posts losses to reinvest into its future growth. It is much like Amazon doing over the last decade in expanding its business.

It is important that the company continues to grow its revenue and thus bring in more potential profit. JD will see sales growth of around 20% in the future. Based on analyst estimates, JD should have annual revenues in the range of $300 billion to 2025. A 5% net margin would imply an income of $15 Billion.

The stock’s market cap is JD, and it is currently trading at 8.2 times its FY2025 potential net income. This is an attractive number, but we must also acknowledge that this is speculation. However, even with the prudent estimations of JD’s growth rate and JD’s net margin potential, this stock is still undervalued compared to its future potential net earnings.

Wall Street’s Take

JD currently has a Strong Buy consensus rating based on eleven Buys, zero Holds and one Sell in the past three month. At $97.50, the average JD price target implies 24.5% upside potential. This reason is the main reason I’m bullish about this stock.

Disclosure: Nikolaos Sismanis did not have a position in JDshares at the time of publication, but had a beneficial long position in the shares of BABA through stock ownership.

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