This company is not without risks. Still, following earnings JD.com (NASDAQ:JD) is sporting attractive fundamentals. The case for bullish investors looks compelling. Let me explain.
Source: Daniel Cukier via Flickr
It hasn’t been easy to be a JD stock investor. Shares topped out more than 16 months ago. And despite 2019’s rally, JD is still more than 40% removed from those all-time-highs.
But the winds of change are upon shares right now.
JD’s most recent quarterly confessional delivered strong evidence that the multifaceted tech giant is making the right moves. China’s other answer to Amazon (NASDAQ:AMZN) easily beat Street top and bottom-line forecasts just over a week ago. But it’s not just the headline beat which has our attention.
First-quarter sales saw solid growth of 21%, which while slowing, is stabilizing, with management forecasting revenues for Q2 to grow by 19% to 23% annually. That’s nice. And there’s more. JD stock is also capturing higher gross margins with help from the company’s expanding services business. That division grew by 50% and producing positive free cash flow courtesy of improved operating cash flow and project divestments.
Lastly, JD stock’s strategic partnership with tech giant Tencent has also been renewed. That’s good news too. In conjunction with JD’s Walmart (NYSE:WMT) collaboration, the trio are taking on Alibaba (NYSE:BABA), China’s other but much larger e-commerce and cloud play.
JD Stock Weekly Chart
Of course, trade war risks remain for JD stock. And as we can see on the price chart below, an extended neckline and 38% Fibonacci level combine to form an area of challenging resistance. But there are reasons to be optimistic.
First, with the head and shoulders pattern having completed in a successful triple bottom, today’s “return move” test of the neckline in JD shares holds much less weight as potential resistance as the dominant pattern is bullish.
Also of interest, unlike shares of BABA — which saw investors taking profits following earnings — JD stock found a bid. Not only that, shares remain above pre-earnings prices despite last week’s trade war escalation and lower prices in the broader market for the five-day period.
Finally, with last week’s price action in JD stock resulting in upside confirmation for the decision-based doji candlestick, there’s additional evidence JD’s relative weakness on the price chart is turning the corner towards a period of outperformance.
My recommendation if you want to go long JD stock is to use an improvised signal to buy shares and provide protection against unwanted downside risk. The suggestion is to wait for JD.com to rally back above the doji high of $30.47 before purchasing shares.
The buy trigger remains in effect only if the low of the doji holds. Even though the triple bottom looks important, I’d be hesitant to be long JD stock, as there’s a lot of downside risk between the doji if it fails to hold and December’s key pattern low.
Should shares produce a signal to purchase JD stock, I’d set an initial stop below the doji candle’s closing price $28.17. The $2.30 exposure is the equivalent of 7.5% JD stock risk. In our view, along with taking initial profits at the 50% retracement level near $35, this looks like sufficient wiggle room off and on the price chart.
Investment accounts under Christopher Tyler’s management do not currently own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies and related musings, follow Chris on Twitter @Options_CAT and StockTwits.
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