One of China’s leading e-commerce platforms has caught the attention of JPMorgan analysts, who believe the stock is currently undervalued and poised for a significant recovery.
In its note to clients, JPMorgan upgraded JD.com (NASDAQ:) to Overweight and set a new price target of $36 per share (or HK$140), up from $33 previously, implying over 30% upside potential for the stock.
The investment bank stressed that JD.com’s strategy and valuation had reached a critical turning point and that the company was therefore “too cheap to ignore” despite its conservative growth forecast.
Analysts pointed out that the company’s changed strategy, which now focuses on its strengths rather than competing solely on price, has already had a positive impact on its operating margins.
“We now expect adjusted operating/net margin to exceed 4% in the second half of 2024 and beyond,” JPMorgan said, emphasizing the sustainability of those margins due to JD’s refined approach.
While revenue growth was modest, rising just 1% year-on-year in the second quarter of 2024, JPMorgan expects an improvement in the second half of the year.
The company forecasts revenue growth to accelerate to 3-4% year-on-year in the second half of 2024, supported by continued e-commerce penetration and favorable comparables.
Despite the conservative growth forecast, the bank considers the current valuation of the stock at 6 times the expected earnings for 2025 to be overly pessimistic.
JPMorgan believes the market has overreacted and priced in “no growth,” which, according to JD.com, is far from reality.
JPMorgan sees JD.com as an attractive investment opportunity with a favorable risk-reward profile driven by improved profitability and a more focused business strategy. “We believe JD’s strategy adjustment and valuation have reached an inflection point, leading the stock to outperform over the next 6 to 12 months,” the bank said.
