What a difference six months can make. JD.com (NASDAQ:JD) stock is down 30% in the past couple of years. But therein lies an opportunity to ride the upswing momentum now going into the summer.
Source: Daniel Cukier via Flickr
Yes, JD stock has been sliding for a while, but lately the tide has been changing. Year-to-date, it’s up 30%, which is double the performance of the S&P 500. Clearly, the bulls are setting a tradeable bottom. In early March, and after a strong earnings report, I wrote about the bullish opportunity in JD. The trade worked well for a while, then the geopolitical rhetoric soured all equities in a big way.
We went from almost having an imminent trade deal between China and the U.S. back to being at square one. Stocks like JD are sensitive to the political rhetoric because, like Apple (NASDAQ:AAPL), it sits in the line of fire.
But there is good news to surmise from the price action. First is that the JD stock bulls are not dead. They succeeded in setting higher highs. Sure they failed after hitting prior two accident scenes at $30 and $32 per share but that is part of normal price action.
Once a stock revisits a ledge from which it fell hard, it finds sellers. So it’s natural it works through those orders before it continues higher. But it is important that the bulls hold support levels so they don’t have to reestablish their footing.
In this case, JD.com stock held the $25.50 zone. This was important because it served as the neckline for the late February breakout. It is normal for a stock to revisit the neckline from which it last broke out to test its strength. Bulls now know that they can rely on it as solid footing.
It is also important to note that this happened without any China deal hopium and in spite of the bad news. This lowers the JD risk that if the Trump / Xi meeting fails in a few weeks. It is still vulnerable because this is not a cheap stock.
To that point, JD sells at an price-to-earnings ratio of 80. This is almost three times more expensive than Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Facebook (NASDAQ:FB). This is Amazon (NASDAQ:AMZN) P/E territory, but without the substance that AMZN brings. So JD stock has a lot of potential froth to shed should Wall Street have another tizzy.
How to Approach JD Stock
This is not the same as saying the stock is too expensive nor is it a judgement of its potential. I am merely pointing out the downside risk if the outside factors cause another selling equity wave. It would whirlwind JD into another test of support. If it fails this time, it could target $22 per share. I am in no way calling for this scenario as my base case, but I am pointing out the possibility.
These are nervous and fickle markets on Wall Street. The so-called experts have very little conviction and they have one foot out the proverbial door. We are near all-time highs, so they will sell their positions first without asking questions.
If you own JD stock for a fast trade, I’d suggest setting up your stops below $25.25 per share. But if you’re in it for the long term, then I’d ignore these short-term gyrations for as long as the macroeconomic conditions are this good. We are fully employed and we have central banks committed to fuel the fires. They say to not fight the Fed, so I expect stocks to climb this wall of worry with sporadic dips.
It is crucial to note that this is not December. Last year ended in a Christmas crash because sentiment was horrendous. This time the Fed has flipped from a foe to friend and an ally to stocks. They will rescue Wall Street.
The long-term viability of a competitor like JD.com has its critics. They compare it to AMZN so they wrongly assume that it’s going to fail. Amazon proved that the world wants to transact online. That’s why they gutted the brick and mortar retail industry. This trend is still in its infancy and there is no turning back. So there will be room for many competitors of all sizes that will thrive for decades to come.
JD.com has a legitimate shot at being one of them and for as long as they deliver growth, investors should give them a pass on profitability.
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