JD.com Inc (JD, Financial) has experienced a daily loss of 2.61%, with a 3-month loss of 18.98%. Despite this recent performance, the company's Earnings Per Share (EPS) stands at 1.93. The question that arises is: Is JD.com significantly undervalued? This article aims to answer this question through a detailed valuation analysis. We invite readers to delve into the following assessment to make an informed investment decision.
Company Introduction
JD.com Inc (JD, Financial) is a leading e-commerce platform, offering a wide selection of authentic products with speedy and reliable delivery. The company has built its own nationwide fulfilment infrastructure and last-mile delivery network, staffed by its own employees. This supports both its online direct sales, its online marketplace, and omnichannel businesses. As of September 28, 2023, JD.com's stock price stands at $28.2, while its intrinsic value (GF Value) is estimated at $73.91, suggesting that the stock might be significantly undervalued.
Understanding the GF Value
The GF Value is an estimation of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
JD.com's current share price is significantly below the GF Value Line, suggesting that it is undervalued. With a market cap of $44.40 billion, the long-term return of JD.com's stock is likely to be much higher than its business growth due to its current undervaluation.
JD.com's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. JD.com has a cash-to-debt ratio of 3.22, which ranks better than 80.74% of 1101 companies in the Retail - Cyclical industry. GuruFocus ranks JD.com's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Profitable companies, especially those with consistent profitability over the long term, are typically less risky investments. JD.com has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $152.50 billion and Earnings Per Share (EPS) of $1.93. Its operating margin is 2.63%, which ranks worse than 55.25% of 1115 companies in the Retail - Cyclical industry. Overall, the profitability of JD.com is ranked 5 out of 10, which indicates fair profitability.
Growth is one of the most important factors in the valuation of a company. JD.com's 3-year average annual revenue growth is 19.4%, which ranks better than 82.16% of 1048 companies in the Retail - Cyclical industry. However, the 3-year average EBITDA growth rate is 2.5%, which ranks worse than 62.01% of 895 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, JD.com's ROIC was 6.99 while its WACC came in at 5.45.
Conclusion
In summary, JD.com appears to be significantly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 62.01% of 895 companies in the Retail - Cyclical industry. To learn more about JD.com stock, you can check out its 30-Year Financials here.
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