Option Trade
JD.Com Inc. (ADR) (NASDAQ:JD) Calls
Thursday, August 10, 2017

** OPTION TRADE: Buy the JD SEPT 15 2017 50.000 CALL at approximately $1.75. Place a pre-determined sell at $3.50.

Note: No protective stop losses added -- but if you wish to do so make it $0.70.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

by Ian Harvey   

Chinese e-commerce giant JD.Com Inc. (ADR) (NASDAQ:JD) is expected to report earnings on Monday, August 14, 2017, before the market opens. The report will be for the fiscal Quarter ending Jun 2017. Analysts forecast an EPS for the quarter at $0.02; the reported EPS for the same quarter last year was $-0.03.

Over the last 60 days, the Consensus Estimate for the current quarter has increased from a loss of 3 cents per share to earnings of 2 cents.

Also, given the fact that analyst’s feel about JD.com right now, with huge implied volatility developing, certainly points to a good positive trade developing.

Though the growth of China’s e-commerce sector is not as rapid as it once used to be, JD.Com is bucking the trend and outpacing the sector. This has been attributed largely due to its efforts to appeal to women and an aggressive expansion of its product line with a view to luring more wealthy shoppers. According to a report prepared by global consulting firm McKinsey, growth in China’s e-commerce sector is expected to grow at the rate of 19% this year compared to a rate of 70% six years ago.

As a rival to China’s largest online retail operator, Alibaba Group Holding Ltd (NYSE:BABA), JD.com has also made efforts at ensuring that it stocks the latest gadgets. The chairman and chief executive officer of JD, Richard Liu, attributed the growth to the experience the online retailer strived to give its customers.

“China’s increasingly discerning consumers are migrating en masse to our unwavering vision of online retail that prioritizes quality and user experience above all else,” Liu said in a statement.

JD.com, Inc. has a 50-day moving average price of $42.14 and a 200 day moving average price of $35.67. JD.com, Inc. has a 1-year low of $21.55 and a 1-year high of $47.88. The company’s market cap is $67.72 billion.

Influencing Factors

JD.Com stock has everything going for it.  In 2015 online shopping in China was at 12.7% of the total market.  Then in 2016 online shopping gained to 14.9% market share.  In 2017, online shopping in China is forecast to reach 18% market share.  The sector is forecast to grow at a CAGR of 22% through to 2020.

Now, Walmart sells U.S. items on JD.com, and JD.com houses inventory in Walmart stores.

JD.com thinks its successful brick-and-mortar/online retail partnership with Walmart Inc (WMT) has the potential to leave major players like Amazon.com (AMZN) behind, JD president Winston Cheng said…...

"We're integrating with Walmart in a much tighter partnership, which potentially Amazon might do with Whole Foods Market (WFM)," Cheng said. "But for us, we've already started on this strategy over a year ago with Walmart."

JD.com and Walmart are part of a strategic partnership that gives Walmart a 12% stake in JD.com. The two companies have worked to integrate platforms, inventories and customer resources since tying up.

Customers shopping on China's second-largest ecommerce site can purchase popular U.S.-made products from Walmart stores. This gives Walmart more online exposure in China and allows JD.com space in stores to house inventory.

Since the year started, shares of JD.com have gone up by close to 80%.

If the upward momentum continues, the market capitalization of JD.com could surpass that of China’s online search giant, Baidu Inc (ADR) (NASDAQ:BIDU). Currently Baidu’s market value is only $5 billion higher than that of JD.com. According to China Market Securities International analyst, Richard Ko, this is an indication that the rate of growth of the Chinese ecommerce search market is higher than that of the country’s search market.

They are growing market share in a growing sector, leading them to becoming profitable in 2018 and rising rapidly thereafter.  JD.Com offers online sales of home appliances, digital communications, computers, home merchandise, apparel, baby books, food, and other merchandise.

JD.Com state on their website that they have 236.5 million annual active customers, 81% of orders are placed via mobile phone, 263 warehouses, and US $37.5 Billion of net revenue in 2016.

The company focuses on customer service and fast delivery stating.

JD.Com also has built up their offline retail businesses such as County Service Center & JD Help Service Shop, JD Select, JD’s Convenience Store, and has a partnership with Wal-Mart.  Moreover, JD.Com has made strategic investments in several overseas retail businesses such as Tokopedia (Indonesian online giant), Farfetch (a London-based online high end fashion retailer), and Bitauto (NYSE:BITA) the largest car finance platform in China.  They plan to grow their overseas business further in coming years.

The main revenue drivers are:

  • Increasing customers from a growing Chinese online shopping industry and gaining market share within that sector.
  • JD’s off-line shopping and overseas expansion.
  • Improving gross margins from a low base.
  • The rising Chinese middle class should be a strong tailwind.

Analysts and Hedge Funds Opinions

BofAMerrill Lynch raised its price target on JD.com, Inc. to $53.00 (from $46.00) while maintaining a Buy rating ahead of Q2 results on Aug 14.

Analyst Eddie Leung sees favorable industry trends driving GMV and revenue growth. They model revenue to grow by 43% YoY to RMB93b, above co.’s guidance range of RMB88-91b.

Several other analysts have also recently commented on the company…..

  • Instinet reiterated a “buy” rating and issued a $37.00 price target on shares of JD.com in a research report on Wednesday, May 10th.
  • Vetr upgraded JD.com from a “sell” rating to a “strong-buy” rating and set a $42.50 price target on the stock in a research report on Tuesday, April 18th.
  • Sanford C. Bernstein upgraded JD.com from an “underperform” rating to a “market perform” rating and decreased their target price for the stock from $39.09 to $21.00 in a report on Tuesday, May 9th.
  • Cowen and Company increased their target price on JD.com from $30.00 to $40.00 and gave the stock a “market perform” rating in a report on Tuesday, May 9th.
  • Benchmark Co. reaffirmed a “buy” rating and issued a $48.00 target price (up previously from $40.00) on shares of JD.com in a research report on Tuesday, May 9th.
  • Finally, Goldman Sachs Group, Inc. (The) increased their target price on JD.com from $38.00 to $47.00 and gave the stock a “buy” rating in a report on Tuesday, May 9th.

Five investment analysts have rated the stock with a hold rating, fifteen have given a buy rating and one has given a strong buy rating to the company’s stock.

Several institutional investors have recently made changes to their positions in the stock…..

  • Credit Suisse AG boosted its stake in JD.com by 13.0% in the first quarter. Credit Suisse AG now owns 3,711,725 shares of the information services provider’s stock worth $115,472,000 after buying an additional 425,587 shares in the last quarter.
  • Think Investments LP bought a new stake in shares of JD.com during the first quarter worth $28,652,000.
  • EMS Capital LP bought a new stake in shares of JD.com during the first quarter worth $31,732,000.
  • Finally, Kora Management LP boosted its stake in shares of JD.com by 28.0% in the first quarter. Kora Management LP now owns 915,500 shares of the information services provider’s stock worth $28,481,000 after buying an additional 200,000 shares during the period.

Harvey’s Options Volatility Indicator

Summary

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

 

** OPTION TRADE: Buy the JD SEPT 15 2017 50.000 CALL at approximately $1.75. Place a pre-determined sell at $3.50.

Note: No protective stop losses added -- but if you wish to do so make it $0.70.

 

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