JD.com Stock Price Forecast August 2021 – Time to Buy JD?

Chinese stocks have been under pressure this year amid the crackdown in the country. JD.com (JD) stock which is down 23% so far in the year was trading lower in premarkets today also.

What’s the forecast for JD stock amid the crackdown in China and should you buy it in August or stay away?

Chinese stocks

 

The crackdown on Chinese stocks began last year and Alibaba was the prime target. Its co-founder Jack Ma’s outbursts against the country’s regulators did no good and eventually, Alibaba had to pay a $2.8 billion fine this year to settle an antitrust case. The country has been targeting several companies and industries. US investors have borne the brunt amid the hardening regulatory environment in the country.

While US stock markets have surged to a record high, Chinese stocks listed on US markets including JD are sagging near their 52-week lows. The country has been coming up with new sets of regulations for the tech industry which the authorities believe has become too large for its shoes.

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JD stock slumped yesterday

Last week, China revealed details of a program titled “the Outline for the Implementation of a Law-Based Government (2021-2025).” The program calls for greater oversight of tech companies. Yesterday, Chinese state media called for higher scrutiny of gaming companies. The news triggered a sell-off on Chinese names and JD stock fell 4.6%.

Now, the State Administration for Market Regulation (SAMR) in China has come up with a new set of draft regulations. The rules have been framed with an intent to control unfair competition in the digital economy. However, Chinese tech stocks are reacting negatively to the news and JD stock is down almost 4% in US premarket price action today.

JD stock forecast

Wall Street analysts look bullish on JD stock and it has received a buy rating from 43 out of the 46 analysts polled by CNN Business. Three analysts have a hold rating while one analyst has a sell or equivalent rating on JD stock. Here it is worth noting that most of these ratings were assigned before the tech crackdown in China. Many of the analysts have been taking a pessimistic view of Chinese stocks like JD amid the crackdown.

Cathie Wood has been selling JD stock

Cathie Wood of ARK Invest who was buying JD stock only about a couple of months back has been gradually cutting stakes in Chinese stocks over the past month. JD is among the Chinese names where Wood has been lowering her stake. “The incentives to become incredibly successful in China are diminishing somewhat now that the government is expressing concern,” Wood said last month at a webinar. She added, “Some people feel they have more power than the government would like them to have. So I do think there’s a valuation reset.”

Warning of long-term deterioration in valuation multiples of Chinese stocks she said “I would say from a valuation standpoint these stocks have come down and from a valuation point of view [they] will probably remain down.”

JD stock has a median target price of $95.95 which is a premium of almost 44% over current prices. Its lowest target price of $41.85 is a discount of 37.2%. However, its street-high target price of $129.94 represents an upside potential of almost 95% from current levels.

Technical analysis

JD stock is not looking too good on the charts. There was a death cross formation in the stock earlier this year after its 50-day SMA (simple moving average) fell below the 200-day SMA. While a death cross is a lagging indicator it signals a long-term bear market.  JD stock was previously facing a resistance at the 100-day SMA but failed to cross above the trendline. It eventually fell below the 50-day SMA which is now acting as a strong resistance for the stock.  The 14-day RSI for JD stock is 38 which is getting near oversold levels. RSI values below 30 signal oversold levels while values above 70 imply overbought positions.

JD stock valuation

JD stock trades at an NTM (next-12 months) PE multiple of 49.1x. The multiples might have looked reasonable in normal course but given the crackdown in China, they would appear high. The risk of investing in Chinese companies, especially the big tech names, has increased amid the crackdown. The continued crackdown on tech companies has led to a lot of uncertainty among investors.

A couple of weeks back, it seemed that the worst is over for Chinese stocks. The country had also tried to reassure investors and investment bankers. However, after the current set of regulations, it now seems that the crackdown is far from over and is more structural in nature as Chinese president Xi Jinping tries to strengthen his grip on the country and the economy.

Given the continued uncertainty in Chinese stocks, investors should consider JD only if they are willing to assume the higher geopolitical risk associated with investing in Chinese companies.

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