by Ian Harvey
May 20, 2020
JD.com reported strong beats to the top and bottom line last Friday. Analysts reacted favorably to the strong financial results and outlook for the next quarter. It is expects its revenue to rise 20%-30% annually in the second quarter.
And, Stock Options Made Easy “Armchair Trader” Members are up 246% potential profit based on a CALL OPTIONS trade.
Also, “Earnings Predictions” Members are up 229% potential profit.
The recommended Armchair Traders options trade - ** Buy JD SEP 18 2020 43.000 CALLS at approximately $4.10.
The recommended Earnings Predictions options trade - ** Buy the JD JUN 19 2020 48.000 CALL at approximately $2.65.
The Recommended Trade…..
“This is a precarious time to be investing in China. But many Chinese stocks, particularly in the technology and service sectors, look attractive if you're willing to deal with some volatility.
Even before the coronavirus outbreak, which originated in Wuhan province, relations between China and the West were strained. The U.S. and China have been engaged in a tit-for-tat trade war for most of the Trump presidency, and there is widespread fear in Western capitals that 5G telecom equipment manufactured by Huawei is capable of state espionage.
Trade tensions alone were reason enough to make many investors wary of Chinese stocks. Then the COVID-19 pandemic happened, exposing the risks of a globalized supply chain.
Going forward, a lot of companies might be reconsidering the merits of cheap Chinese manufacturing and opt to stay closer to home. But the truth is that China has long evolved past the smokestack stage of development. The country is a major technology and digital entertainment hub, even if the vast majority of its products and services are destined for domestic use.
But, one of the best Chinese stock in the market right now is e-commerce giant JD.Com Inc. (ADR) (NASDAQ:JD), often referred to the Chinese Amazon.com, despite the fact that its larger competitor, Alibaba, is often called the same.
Online retailers have been gaining ground on traditional retailers for more than two decades. The virus lockdowns only accelerated the process.
JD.com is essentially China's home-grown version of Amazon. JD.com boasts 32 million active users and sells virtually everything you can think of: electronics, clothes, appliances, food and more.
JD.com is a pioneer in rapid delivery, offering next-day and often same-day shipping for many of its products. And via its JD Logistics arm, the company allows outside companies to piggyback on its sprawling empire of fulfillment centers and state-of-the-art warehouses.
The coronavirus started to really wreak havoc on China early this year, but you'd never know it by looking at JD.com's stock price. JD, which we called one of the top tech stocks for 2020, is up 24% year-to-date and at its highest level since 2018.”…...
Chinese e-commerce giant JD reported strong beats to the top and bottom line on Friday. JD.com's underlying performance right now is impressive, with strong revenue growth leading to an increase in profit margins, as the company's growing revenue helps it overcome its high fixed cost base.
JD saw its revenues increase by 20.7% compared with the same period a year ago.
JD saw its active customer figures rise by 25% in Q1 to 387 million. JD.com did partially benefit from COVID-19, as the company was well-positioned to remain operational and provide customers with products they relied on, such as fresh products and other daily necessities.
What's more, JD has now become the biggest supermarket in China, with approximately 20% more revenues than the biggest offline supermarket in the country.
However, JD suffered from the increase in tension between the U.S. and China relations on Friday, and the stock only rallied about 4%.
But, Monday saw JD.com shares rise more than 5% during Monday's session after analysts reacted to Friday's better-than-expected first quarter financial results.
Analysts reacted favorably to the strong financial results and outlook for the next quarter.
Benchmark's Fawne Jiang reiterated the firm's Buy rating on JD stock and raised its price target to $66 per share, saying that JD was still in the early stages of several years of above-average industry growth and margin expansion.
Barclays' Gregory Zhao maintained the firm's Overweight rating on JD shares and raised its price target to $59, saying the offline to online shift that the pandemic has accelerated could extend beyond the pandemic period.
Stifel analyst Scott Devitt, who raised his price target to $50 -- with shares trading above that level -- maintained a neutral rating. Devitt still believes the company will continue to gain market share in China's $1 trillion e-commerce market. He said, "JD will continue to benefit from the accelerated shift in eCommerce adoption and expect a recovery in discretionary categories as conditions normalize," according to the report.
Mizuho Securities analyst James Lee maintained a Buy rating and raised the price target from $58 to $62. "We believe the positive structural impact of COVID-19 will continue to drive operating leverage and margin expansion," Mizuho said.
UBS analyst Jerry Liu raised his price target to $67 and wrote, "JD's consistent execution and post COVID-19 traction with consumers give us more conviction in the company's near to medium term revenue growth and margin expansion."
Liu believes that even as consumers emerge from COVID-19 lockdowns, JD will continue increasing sales, and will do so while reigning in expenses, with increasing margins. The company's guidance of second-quarter net revenue growth between 20% and 30% versus last year supports analyst optimism.
The Technical Situation.....
The stock broke out from trendline resistance to fresh highs. The relative strength index (RSI) moved into overbought territory with a reading of 76.62, but the moving average convergence divergence (MACD) remains in a strong bullish upswing.
These indicators suggest that the stock could see some consolidation, but the intermediate-term trend remains sharply bullish.
JD expects its revenue to rise 20%-30% annually in the second quarter, assuming that the waning COVID-19 crisis doesn't cause an "unexpected disruption" to its operations. It didn't provide any earnings guidance, but CFO Sidney Huang suggested the "margin dynamics" of the first quarter, which bore the brunt of the lockdown measures in February, would be similar if the COVID-19 headwinds unexpectedly accelerated again.
Wall Street expects JD's revenue and adjusted earnings to rise 18% and 15%, respectively, this year.
JD is often referred to as the Amazon of China. It has substantial investment from Walmart on the basis of that assumption, with Walmart owning approximately 10% of JD.com.
For now, JD continues to be much disciplined about its operating margins, while at the same time, continuing to grow its platform aggressively. This stock is not pricing in this full potential.
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An Important Note: That any suggestions for options trade considerations require investors/traders to use their own discretion as to when to enter or exit! As well, it is advisable to do further research and due diligence before executing your trade.
It is sometimes best to exit a trade, if there is already sufficient profit accrued, before an earnings report is presented. GREED can be the undoing of a nice profit!