In a vacuum, JD.Com Inc (ADR) (NASDAQ:JD) is an impressive company. In constant comparison to bigger rival Alibaba Group Holding Ltd (NYSE:BABA) though, JD stock struggles to find the respect it’s earned.
Maybe that will change on Tuesday morning, when the Chinese e-commerce player unveils its first-quarter results. Analysts are confident that revenue will be up quite nicely, though aren’t exactly confident that top-line growth will lead to a bottom line improvement … a fear further whipped up by the fact that Alibaba was able to drive some significant revenue growth of its own last quarter, but suffer slimmed margins due to acquisitions and investments.
In other words, the JD.com news expected Tuesday morning could push JD.com stock either way. The good news is, some clear lines in the sand have been drawn.
JD.Com Earnings Preview
As of the most recent look, analysts are looking for first-quarter earnings of 18 cents per share (ADR) on revenue of $15.6 billion.
Both are better than year-ago figures, though not comparably so. The sales outlook is 29% better than the top line of $12.0 billion the company mustered for the same quarter of 2017, but the projected profit of 18 cents per share is barely better than last year’s bottom line of 16 cents per share of JD stock.
This is, more or less, the fork in the road U.S. counterpart Amazon.com, Inc. (NASDAQ:AMZN) faced a few years back, when it was forced to decide between profit margins in line with its peers and competitors, or revenue and marketing reach that know no end. It chose the latter, and the rest (as they say) is history. Investors have accepted the fact that Amazon.com is a growth-at-all-costs company.
It remains to be seen if they’ll view JD and Alibaba in the same light.
So far traders haven’t had to decide, though it’s a paradigm that’s starting to change though. While BABA shares ultimately responded to Alibaba’s Q1 report in a bullish manner, the knee-jerk response was a bearish one, as investors are finally forced to digest the fact that future growth won’t come as cheaply as it has in the past.
The good news for current and would-be owners of JD stock is, we’re headed into its earnings report with some clear battle lines drawn.
JD.Com Stock Chart Tells a Story
The past several weeks have been particularly ugly ones for JD shares. The stock fell from a peak near $48 to below $36 late last month, and though they’re up in the meantime, it’s a wobbly rebound effort… and still within reach of breaking under a key support level.
There may be more to that $36 mark than initially meets the eye though.
Take a look further back. The $36 area was where a double bottom was made in the last quarter of last year, and if you go back to May of last year you’ll see there was still a bullish gap that was aching to be closed in the decisive way it was filled in just last month.
As for the big meaning, it just means that the bears had their chance to up-end the stock in a big way, and couldn’t.
That’s not to say they won’t try again. A bearish response to Tuesday morning’s number could push the stock down again and break that critical floor and really send the stock careening. It’s just to say that we know exactly where the tipping point is; it’s the line that’s already been something of a battleground.
Conversely, although the current undertow is bullish and a good earnings report could fan the bullish flames, until and unless JD stock can blast past that entanglement of resistance between $41 and $43, we can’t jump to any major bullish conclusions.
Bottom Line for JD Stock
In other words, though we might see some post-earnings fireworks, we can’t presume too much about the stock’s momentum until it’s above $43 or below $36. Anything else is just noise.
And perhaps just as important, what’s most likely to drive shares outside of that range is the market’s belief about whether or not the sales growth JD.Com is going to create will come at a cost that is too great. That’s a new discussion for this particular company though, as it is for Alibaba shareholders. It could take a few days for traders to really figure out if they’ll give either of China’s e-commerce outfits that same leeway Amazon.com has received from U.S. investors — permission to grow at all costs, even if it means minimal margins.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
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