JD.com Earnings May Boost the China Bull Case. What to Expect.

JD.com
‘s next earnings report, slated for Wednesday, could reinforce the bullish investment case on China at a challenging time for the world’s second-largest economy. The e-commerce group is expected to post third-quarter sales growth in a tough economic environment.

JD.com
(ticker: JD) is expected to post earnings of 5.87 Chinese yuan (81 cents) on revenue of 247 billion yuan ($34 billion) in the third quarter, based on the estimates of analysts surveyed by FactSet. If the company delivers revenue in line with expectations, that would represent sales growth of 1.5% year over year.

While 1.5% annual sales growth isn’t spectacular—and far from the double-digit percentage growth investors have seen in years past—it isn’t too shabby either, considering the backdrop. China’s economy has slowed, and that has weighed on consumers, with retail sales falling and even deflation taking hold.

In theory, these trends should wreak havoc on the likes of JD.com and its e-commerce peers, like
Alibaba Group Holding
(BABA). But those groups have done remarkably well, thanks to efficient management. You wouldn’t know it from their stock prices, however: Shares in JD.com are down 53% this year.

JD.com managed a big second-quarter earnings beat as a result of improvements to operating efficiency, and investors will be hoping for a repeat in the third quarter. At stake might not just be JD.com’s stock price, but wider sentiment on China.

The country’s economic outlook remains clouded, though investors have recently shown signs of cautious optimism. Proof that the country’s stock market stars can continue to turn a profit and eke out sales growth could reinforce the bull case and reassure investors that these stocks can be held through thick and thin.

Write to Jack Denton at [email protected]

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