r/valueinvesting
JD.com - Jingdong Group
JD is extremely cheap at ~3x core retail PE after subtracting cash and subsidiaries, despite China macro and new business expansion risks.
- Core retail business trades at an extremely low valuation of around 3x earnings after accounting for net cash and subsidiary stakes.
- Strong balance sheet with $15-20B in net cash and resilient 13% revenue growth despite intense market competition.
- Significant earnings upside if cash-burning new businesses like food delivery and overseas expansion become profitable.
- Fierce competition across all fronts and a weak Chinese consumer environment are pressuring overall margins.
- Heavy cash burn and substantial losses from aggressive spending on new business expansions like food delivery and overseas markets.
- Lacks high-margin growth drivers such as cloud computing and a large premium membership base compared to global peers.
Back to annoy everyone with another Chinese stock and to convince myself not to increase my exposure to China...
Most people have probably heard of JD.com the Chinese e-commerce company, it has similarities to the e-commerce and logistics of Amazon or Coupang, but doesn't really have cloud and lacks a large premium membership base. I obviously don't think it's nearly as good of a business as Amazon, but it is very cheap...
JD's market cap is around $38B, they do a ton of revenue with very low margins and have fierce competition on all sides. The company has a healthy balance sheet with net cash position of $15-20B. They've listed subsidiaries over the past few years in JD Health and JD Logistics...
JD Health - $15B market cap, JD owns 66% = $10B value or $7B with a 30% conglomerate discount
JD Logistics - $10B market cap, JD owns 60% = $6B value or $4.2B
So a $38B company - $15B cash (conservative w/ heavy investments) - $7B - $4B = $12B for the "main" JD business. JD retail is actually a pretty strong business they are just losing a lot of money on their investments in food delivery and overseas expansion.
JD retail made $7.4B in net income in 2025 which includes JD health which looks like just less than $2B of that net income. They lost almost all of that on their "new business." So without that expansion you'd be paying about 3x earnings for the main JD business based on these estimates.
Competition is fierce, the Chinese consumer is not particularly strong, and I'm not saying JD is the best business in the world (they do have very strong logistics) but amongst that they still grew total revenue 13% last year.
It's very cheap today because it's in China... the main issue is their expansion and spending which I see basically going one of three ways:
Best case - It works out and they start to make some money from food delivery and international you'd start to see the healthy retail segment in their bottom line and earnings would increase dramatically
Middle - It doesn't work out but they decide to cut their investments or ditch food delivery - fundamentals still improve bc they drop the money losing segments, this scenario is almost as good in my opinion IF they actually decide to stop spending
Worst - they continue to lose money on food delivery and international expansion in which case I think the stock just stagnates but would rise with any positive sentiment on China overall
Yes regulatory risks, yes everyone knows what a VIE is, every company and every geography has risk. I'd love to know if any of this analysis is wrong I did it fairly quickly... you could also just buy JD logistics which is the strongest piece for under 10x earnings...
I hope you make money but I am staying away from Chyna stonk. Best of luck.
They are a first party ecommerce company, buying their mostly higher priced goods, holding them in warehouses, and reselling them vs. the 3P model so it's not an asset light business. I think everyone would agree the 3P/marketplace model is a better model. That plus they're losing money on all their investments particularly food delivery right now but I would never expect a massive ROIC for the parent company, the subsidiaries have better (but not exceptional) ROIC.
Basically JD was progressing nicely in margin expansion and then decided to enter the food delivery wars, i don't like food delivery, but that's why the stock is so cheap (and could certainly get cheaper)
Here’s the thing, you think you are buying a stock that it will behave somewhat like an American stock but you are really ignoring the overarching dirty secret about China’s post-Tiananmen Square economic transformation: it is highly autarkic and has been effectuated to 1) ensure the state maintains pre-eminent power; 2) the general population experiences a rising standard of living; 3) aggressively minimize the benefit of said transformation accruing to foreigner investors (which means shareholders in Chinese companies, like JD.com). This is “Capitalism with Chinese characteristics.”
Check out the empirical results: since the early 90s, the standard of living for most Chinese (primarily urban dwellers in coastal provinces and large cities in the interior provinces) has risen massively. Hundreds of millions of people have been raised from poverty to better circumstances, as annual GDP growth has averaged a bit better than, let’s say, 10% since 1992.
How did Chinese equities perform during that period? Classic economic theory would suggest they should have a performance a bit better than the HDP growth rate, so something like 12-15% per annum. The MSCI China Index (US$) has actually only averaged about 2% per annum since 1992. Yes, that is not a typo!
Here's the thing, I don't expect Chinese stocks to behave like American stocks.
You're overestimating their cash position. They don't have that much cash.
A better question to ask, though, is why are they going crazy with all these "new ventures", w/o much to show for? Does this look like a company confident in their core business?
I interpret this as they are seeing strong headwinds that haven't shown up on financials yet.
Don’t forget it gives dividend and is doing share buybacks.
Yes, JD is ridiculously cheap. Its current PE ratio is distorted (same for Alibaba, Meituan) due to the food delivery price wars. A normalized PE ratio (taking just JD Retail) would be around 5x. Net cash almost half of market cap, investments \~40% of market cap, trading at \~5x normalized PE...
To add on, JD has \~$18bil of fixed assets (>3,600 warehouses with a total area exceeding 34 million square meters). These properties and land holdings were accumulated and developed over decades and have appreciated significantly, but are still recorded at historical cost on the books. If the management were to monetize part of this real estate portfolio via REITs, it will unlock significant value and generate substantial additional cash flows.
The market is pricing like JD is going bankrupt and destroying value lol. So the question is, how long is such mispricing by the market going to remain?
For me, I'm not afraid that it remains undervalued for a long time, as long as they are returning capital to shareholders every year:
/
JD is returning almost 10% capital to shareholders at the current price. 3.5% dividends + 6.3% share buyback. If the current price doesn't move and they can sustain this level of buybacks, you can become a major shareholder in 10 years time by reinvesting your dividends. Those billions of profits/dividends will then belong to you lol.
Tencent is also another great company. Strong moat, double digit growth, fwd PE of around 10x if you strip off net cash. It's buying back HKD500mil of its shares every trading day (it's disclosed). Your EPS increases everyday. The more the price drops, the faster your EPS grows.
The thing is, share buybacks take a long time to compound. For a company buying back 10% shares every year, the EPS increases 11% in the first year. If prices remain depressed, in the 9th year outstanding shares will reduce by 90% and EPS increases 10x. Dividend per share also increases 10x. And that's assuming zero growth.
I'm hoping prices for companies like JD and Tencent remain depressed as long they have strong cashflows to fund share buybacks lol. I'm young and I can wait it out.
People still buy chinese stocks? They're cheap for a reason lol
JD does pay a dividend. So at least you get 3.5%.
I'd rather they just bought back more stock tbh
Yep, if you’re going to take the china risk go BABA. Otherwise would advise to be very careful.
I’m investing in Europe and Japan, don’t see much going well with China.
If you want to invest in e-commerce in China with some exposure to robots and AI, buy Meituan. If you only want some Chinese e-commerce exposure and a focus on AI etc buy Alibaba. JD is the weakest out of all 3
You never know if Chinese stocks are going to return the money to shareholders
They do frequent buybacks and pay dividends, in that regard they do have a policy of returning value to investors