New Trade for November 2nd, 2023

High interest rates typically spell trouble for tech stocks, and presently, they pose a significant  risk, especially for those deemed “expensive.” However, a segment of the sector stands well-positioned amidst this scenario.

“Going forward, we still find valuation/earnings support for value tech stocks over growth or expensive tech names,” conveyed Bernstein analysts in a client note.

Today, our spotlight is on a stock boasting an appealing valuation and a robust balance sheet—attributes analysts believe could propel its value to double by 2025.

Even though tech valuations in Asia are more sensitive to bond yields than they have been in the last 10 years several analysts there reasons to get excited about the Asia tech sector. 

“It’s worth noting that historically, the Asian tech sector has shown resilience, generating an average of 9% outperformance during global recessions, indicating limited recession risk,” said Bernstein analysts in a note.

Given the attractive valuation metrics, projected revenue growth, and the potential upside, JD.com presents a compelling buy opportunity for investors seeking exposure to the Chinese e-commerce space with a value play. The diversified business model, particularly the strong performance of the logistics segment, further adds to the bullish case for JD.com.

Why we like JD:

  • Compelling Valuation Metrics:
    • JD.com trades at a relatively low valuation, with a multiple of 4.1x the 2023 EBITDA of $5.75 billion and 3.5x the 2024 EBITDA consensus of $6.79 billion. On a Price to Earnings (PE) basis, it trades at 10x EPS estimates of $2.93 for 2023, and at 8.5x based on the 2024 consensus for EPS of $3.42​.
    • The enterprise is valued at $38.35 billion, with an enterprise value of $15.07 billion as of October 20, 2023​.
  • Revenue Growth Projections:
    • Revenue is projected to grow nearly 5% in 2023 and 10% in 2024, demonstrating a solid growth trajectory amidst a competitive e-commerce landscape in China​.
  • Potential Upside:
    • Analysts suggest a potential upside of around 104% to $195 per share for JD.com, driven by growth in revenues and slight multiple expansion to 1.5x to 1.6x revenues​.
  • Resilient Business Segments:
    • Despite a tough market environment and increased competition, JD’s Logistics unit has shown strong performance with revenue growing 31% in a recent quarter. The logistics segment’s sales and profitability surge illustrates a diversified income stream that could provide a cushion against retail segment volatility​.
  • Attractive Entry Point:
    • JD.com’s stock price experienced a sharp decline of over 40% during the first half of 2023, creating a potentially attractive entry point for investors. The sluggish recovery of the Chinese economy was a major contributor to this decline, yet the stock is now viewed as undervalued, triggering a buying opportunity​.

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