Is JD.com's Stock Overvalued Or Undervalued?

JD.Com Inc (NASDAQ:JD) shares have lagged the S&P 500 in 2021, generating a year-to-date total return loss of 16.1%.

Photo: courtesy of JD

JD's stock has had a wild ride in 2021, but investors may be wondering whether there’s any value in JD.com shares after the recent pullback.

Earnings:A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 28.7, nearly double its long-term average of 15.9.JD.com’s PE is 29.1, roughly in-line with the S&P 500 average as a whole.

Growth:Looking ahead to the next four quarters, the S&P 500's forward PE ratio looks much more reasonable at just 20.8.JD.com’s forward earnings multiple of 5.4 is still less than a third the S&P 500’s, making JD.com look undervalued. JD.com’s forward PE ratio is also only about 17% of the average multiple of its consumer discretionary peers, which are averaging a 31.7 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process.

The S&P 500’s overall PEG is currently about 1.0; JD.com’s PEG is 1.23, about 23% higher than the S&P 500.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.11, well above its long-term average of 1.63. JD.com’s PS ratio is 0.86, less than a third of the S&P 500 average as a whole. JD.com's PS ratio is also down 22.3% over the last five years, suggesting the stock is priced at the low end of its historical valuation range.

Finally, Wall Street analysts see value in JD.com stock over the next 12 months.The average analyst price target among the 41 analysts covering JD.com is $105.19, suggesting 57.1% upside from current levels.

The Verdict:At its current price, JD.com stock appears to be extremely undervalued based on a sampling of common fundamental valuation metrics.