The last 12-months have taken investors on a whirlwind ride. Equity markets were at a multi-year low in March 2020 with major indices falling over 35% due to COVID-19. The dreaded virus forced governments to impose lockdowns that led to lower consumer demand and a spike in unemployment rates.
Companies across certain sectors including airline, retail, hospitality, energy, and entertainment were decimated as a result.
However, the pandemic acted as a tailwind for companies in the tech space as demand for e-commerce, cloud computing, streaming services, gaming, and collaboration tools soared at an exponential rate.
One such tech stock that has outpaced the broader market is China’s JD.com (NASDAQ:JD, HK:9618)
Let’s take a look at why the Asian e-commerce giant has gained pace and surged 75% over the past 12 months.
JD.com’s recent quarterly results
JD.com is one of the largest e-commerce players in China. In the fourth quarter of 2020, the company’s sales were up 31% year-on-year at $34.4 billion while non-GAAP (generally accepted accounting principles) earnings almost tripled to $0.4 billion or $0.23 per share.
In 2020, JD.com’s revenue growth accelerated to 29.3%, compared to growth of 29.4% and 27.5% in 2019 and 2018 respectively. The company attributed its stellar top-line growth to expansion in China’s smaller towns and cities as well as the rising popularity of annual online shopping events.
In terms of products, JD.com said demand was strong across categories including cosmetics, electronics, FMCG (fast-moving consumer goods), and healthcare.
Another key metric that investors should look at is the increase in JD.com’s customer base that rose by over 30% year-on-year to almost 472 million. This was the second consecutive quarter in which the company’s customer base rose by over 30%. This will continue to drive top-line growth in 2021 and beyond.
In 2020, JD.com’s high margin Services business grew revenue by 42% year-on-year, accounting for 12.6% of total sales, up from 11.5% in 2019. This allowed the company to increase its operating margin by 60 basis points last year.
Similar to most other e-commerce companies, JD.com is willing to sacrifice profit margins for top-line growth.
It operates a capital-intensive business and it has now built up a huge customer base that will lead to repeat purchases and allow it to benefit from economies of scale.
Valuation and more
On the Nasdaq, JD.com is trading at a market cap of around $120 billion indicating a forward price to sales multiple of 0.83x and a price to sales multiple of 41 which is reasonable considering its growth rates.
Analysts expect sales to grow by 25.7% in 2021 to $143.5 billion and by 21% to $174 billion in 2022. Comparatively, earnings are forecast to grow by 15% in 2021 and by 42.5% in 2022.
JD.com’s robust revenue growth, rising customer base, and improving profit margins make it an exciting bet in 2021.
Another Asia-based e-commerce giant has recently caught the attention of a leading fund manager. Read about the Japanese stock in this Asia Markets article.