The JD.com [JD] share price has fallen 29.2% in the year-to-date to $62.19 on 19 August. The stock had started the year on a high, with the JD.com share price gaining 21.6% to hit a 52-week high of $108.29 during intraday trading on 17 February.
However, shares in the Chinese e-commerce company have seen a steep decline since then, declining to a 52-week low of $61.65 during intraday trading on 27 July. Over the past 12-months, the JD.com share price has fallen 14.3% (through 19 August).
The decline has been driven primarily by deteriorating consumer sentiment surrounding Chinese tech stocks as Beijing continues to bear down on the sector. The regulatory clampdown began last year when Ant Group’s much-anticipated IPO was quashed by the Chinese government, ostensibly because it added financial risk to the Chinese financial system. Ongoing sanctions – most recently against ride-hailing platform DiDi [DIDI] following its US IPO – have further cooled already frigid appetites for Chinese technology stocks.
New antitrust rules announced on 17 August would look to ban a company from any misleading practices, including the use of data or algorithms to redirect web traffic and restricting the ability of companies to post misleading information about product sales or customer reviews. The JD.com share price fell 3.6% in response to the new wave of regulations when the news was released.
Is the JD.com share price undervalued?
China’s regulatory crackdown on the technology sector has made JD.com a risky stock. Indeed, the Global X MSCI China Information Technology ETF [CHIK], which invests in companies in China’s information technology sector but that does not hold the JD.com share price, is down 13.6% in the year to date (through 19 August). In comparison, the Shanghai Composite is down just 0.2% in the same period.
Given this, many investors may feel that Chinese tech stocks in general – and the JD.com share price, in particular – might be undervalued. But as the company prepares to announce its earnings report for the quarter ending June 2021 before markets open on 21 August, investors might look to take advantage of the JD.com share price’s recent struggles.
However, while a positive surprise in the upcoming earnings report is unlikely to overcome this pessimism, a disappointing set of results could see the JD.com share price sink even lower.
Sales expected to rise on declining earnings
JD.com had reported earnings of $0.38 per share in the previous quarter, which exceeded Zacks Equity Research analysts’ expectations by 15.15%. Sales of $31bn were 3.5% above analyst expectations. All in all, the positive surprise led to a 1.2% increase in the JD.com share price on 19 May after releasing its first-quarter earnings.
“As our strong growth momentum from last year continued into the first quarter of 2021, we are also encouraged by the diversification of our revenue streams with an increasing contribution from service revenues,” Sandy Xu, the chief financial officer of JD.com, said in a statement alongside the results. “JD Retail’s operating margin further expanded during the quarter, as we continue to drive stronger operating leverage through technology and innovation.”
“JD Retail’s operating margin further expanded during the quarter, as we continue to drive stronger operating leverage through technology and innovation” - Sandy Xu, chief financial officer of JD.com
Analysts at Zacks Equity Research have a consensus sales estimate of $38.28bn for the upcoming second quarter, which would represent a 34.5% increase on the same quarter last year.
On the downside, however, the same group of analysts have a consensus earnings estimate is $0.41, representing an 18% fall year-over-year. Analysts at the publication expect sales to be in a range from $37.97bn to $38.61bn, while earnings estimates range from $0.40 per share to $0.44 per share.
Scott Devitt, an analyst at Stifel Nicolaus, maintained a buy rating for JD.com shares ahead of the earnings report, according to Investing.com. He had a target price of $85 on the stock, representing a 36.6% increase on the 19 August close.
JD.com shares extend declines in ETFs
The JD.com share price is a major holding in the Invesco Golden Dragon China ETF [PGJ]. The fund, which tracks the Nasdaq Golden Dragon China Index of US exchange-listed companies headquartered or incorporated in China, holds JD.com as its second-largest holding with a 9.72% weighting, as of 18 August.
The MSCI China Consumer Discretionary ETF [CHIQ] is another major holder of the stock, with JD.com shares being the third-largest holding in the fund as of 19 August, with a 6.46% weighting.
Invesco’s Golden Dragon China ETF has fallen 36.9% in the year-to-date (through 19 August), while the MSCI China Consumer Discretionary ETF’s losses were more moderate with a decline of 20.4% in the same period.