JD.com Stock Up 8% in November – Time to Buy JD Stock?

The price of JD.com stock has gone up nearly 8% so far in November following positive news from China’s popular Singles’ Day event – a major holiday for e-commerce businesses and one that sets the tone for the entire industry ahead of Christmas.

According to a press release from the company, a total of RMB 349.1 billion ($54.7bn) were sold during the 11-day event that started back on 31 October resulting in a new record for the Chinese e-commerce platform. Data from Statista indicates that the company sold a total of RMB 271.5 billion last year resulting in a 28.5% year-on-year jump.

Apple (AAPL) products alone contributed RMB 10 billion while a total of 31 brands surpassed the RMB 1 billion mark.

For Chinese tech corporations, this recent success is important in shaping the narrative in the stock market now that regulators appear to have taken a breather in regards to their latest intervention in certain segments of the economy.

Can this positive development prompt the beginning of an uptrend for JD.com stock? Find out in this article as I take a closer look at the price action and fundamentals of this Chinese stock.

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JD.com Stock – Technical Analysis

JD.com stock has been steadily recovering from the hit it took earlier this year after the Chinese government adopted a somehow hostile attitude toward the tech sector in an effort to regulate its activities.

The chart above shows that a double bottom at $62 per share prompted a surge in the stock price and led to the formation of an ascending price channel that has shaped the price action for JD stock in the past couple of months.

However, there are a few signals that are pointing to a bearish outlook for JD stock including bearish divergences in both the Relative Strength Index (RSI) and the MACD as the two oscillators have not made a new high despite the price advancing to a higher level.

Meanwhile, the price has been hovering above and below its short-term and long-term moving averages. This indicates that market sentiment is not still unidirectional, possibly as concerns about further regulatory measures against tech companies keep weighing on the valuation of businesses within the country.

All things considered, even though the trend is pointing to a bullish outlook, momentum seems to be fading and that is one reason to adopt a cautious approach – especially at a point when Chinese stocks are not positively viewed by market participants in the US.

JD.com Stock – Fundamental Analysis

In a previous article about JD.com from back in July, when the price was at $62 per share, I highlighted that the market was taking things too far amid the ongoing regulatory crackdown carried by Chinese authorities back then.

Even though it is still too early to tell if JD.com qualifies as an attractive long-term pick, the short-term results of that call have been good as the stock has surged nearly 22% since the article came out.

The question at this point would be: is the valuation still attractive after this advance?

Since 2016, JD.com’s EBITDA figure has grown from $312.3 million to $2.57 billion by the end of last year  at a compounded annual growth rate (CAGR) of 69.4%. Meanwhile, the firm’s EBITDA margin has improved substantially from 0.8% to around 2.2% during that same period.

Meanwhile, its enterprise value is standing at $113.7 billion resulting in an EV/EBITDA multiple of 64 using data from the past twelve months.

Even though at first glance it may seem that the company is overvalued, the rate at which its EBITDA figure is growing points to JD.com as a fairly valued enterprise at its current market cap.

With this in mind, it seems that, from a fundamental standpoint, the upside potential for JD.com might be limited unless a positive catalyst like a change in the tone of Chinese regulators ends up pushing the valuation of businesses within the country higher in the near future.

With this in mind, and considering the above-mentioned technical assessment, there are reasons to believe that the short-term action for JD.com could be bearish.

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