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let's discover why legendary investor Michael Barry just doubled down on jd.com and what it means for us and to do that we are going to go through our seven step analysis process to find out why not only Michael Berry but also other great investors are buying this stock right now but let's start with a quick look at the recent results of one of the largest e-commerce companies in China revenue is up by 5.1% year-over-year net income is up by 56.1% so that is quite incredible cash is up by 37.8% since the beginning of the year and that is down by 5.8% so why is the price down by 11.3% last month if we see such strong results well it is most probably because of broader economic conditions in China regulatory risks and concerns about future growth so the market reaction may not be directly correlated with the company itself and such moves can sometimes create great investment opportunities so um let's take a look look at it if you invested $1,000 in this company 10 years ago you bought 37 shares and today they would be worth something close to $133 and this company also pays dividends so in that time you would get $22 as dividends so if we add together the current value of shares and the dividends we get $1,325 and that is a gain of 32% in 10 years not great but this stock is down by 66.8% from its peak so maybe just maybe such price drop created an opportunity for us and uh for some other investors as well individual insiders that is a check 11.3% of the company is owned by individual insiders so that is great news the CEO and founder has a lot of skin in the game and that is exactly what we like to see and are individual insiders buying that is an X we don't see any transactions from insiders and the super investors own this company that is a check with five Super investors including some very impressive names like Michael Berry David terer and Howard Marx and are super investors buying right now that is an X but it is not the full story Barry and terer have been buying this stock for the last three quarters and recently bought over 3.2 million shares meanwhile while other investors sold almost 5 million shares at the same time so let's find out what is so appealing for Barry and terer in jd.com return on invested Capital that is an X at minus 0.5% 10year median returns so that is some very bad news but we should remember that JD has made substantial investments in expanding its logistic Network Technology infrastructure and other Capital intensive projects and they definitely faced challenges in scaling the business until 2019 but since then the return on invested capital is at a reasonable 4.7% and what do we know about net profit margin it is an X averaging 2.3% over 5 years and the industry median is 4.9% so that is not a great margin and now let's take a look at share buyback it is a check they bought back 47% of shares in the last 10 years that is absolutely incredible as a long-term investor you basically own twice as much of the company with without investing any extra money and the debt it is a check it would take just one year to pay the long-term debt with a current free cash flow and we want to see it under two years so that is another impressive result but Financial Health is only a part of the story we want our companies to be strong but we also want them to grow Revenue growth that is a check at 29.5% 10year compound annual growth rate and we like to see this number higher than 10% so that is one fast growth but it is important to notice that it has slowed down substantially in the last four years and free cash flow growth that is a check at 33.8% % in the last 10 years great and earnings per share growth that is a check at 16% in the last four years and we are looking only at the last four years because before that they were not profitable so we understand the health we understand the growth and now it's time to see is there a cherry on top of this cake the dividend yield is 1.7% so shareholders can expect to get 60 cents annually per every share and the payout ratio that is a check at 28.1% and we want to see the payout ratio somewhere between 20 and 50% so that is very nice we are getting almost 30% of the earnings so a meaningful amount but at the same time the company has cash to to invest in its future and what about the dividend growth it is an X because they just started to pay dividends in 2023 so we just don't have any clues of how this story will develop and all the work we did so far is very helpful we can understand the fundamentals of the company but to decide if it can be a good investment we need one more thing price to earnings ratio is only 12.8 what it means is that we have to pay less than $13 for every dollar this company currently earns that is an interesting deal but to calculate the intrinsic value of this company we will use a discounted cash flow analysis and if you would like to know how to Value companies by yourself you using four most commonly used models then head over to stock investing.
Academy and choose our company valuation course okay so first we have to estimate the growth of jd.com for the next 10 years and we will make three scenarios of this growth so in the low scenario we will estimate a growth of 4% for the first 5 years and then 3% in the medium 9 % and then 7% and in the highest scenario 15% and then 12% growth the low and medium scenarios predict that jd.com will grow at the same rate as we predicted for Alibaba in our recent valuation however the high scenario suggests that JD will grow faster than Alibaba why because if we compare the growth rates for the last 10 years J .c has definitely outpaced its competitor so with such estimates the intrinsic value in the low scenario is $53 in the medium $73 and in the high scenario $19 but we have to always apply a margin of safety to those prices I use a 30% one and with such a margin we get in the low scenario $37 in the medium $51 and in the high one $76 and the current price is around $34 so jd.com looks really nicely priced at the moment but before we decide to invest our money into this company let's try to put everything we learned into perspective okay so we have here a company with a CEO that has a lot of skin in the game great buyback program very interesting growth and all of that in an appealing price but it is a Chinese company so regulatory risks and geopolitical tensions have to be taken into account and also the low margins are something to consider so let's compare JD with some of its p years for that we will open the stock ranking Pro where you can find all the data about all the companies we ever analyzed on this channel and let's filter the ranking so that it will show only Broadline retailers and when we sort them by value difference we see that jd.com is the cheapest company cheaper than Alibaba cheaper than pindu Duo that is very interesting think and when we look at the overall score with the valuation taken into account JD stays on top what about when we compare it to over 100 companies in our ranking it still looks great it is the third best company when it comes to overall score and valuation so it looks like a very appealing investment opportunity I can definitely see why Michael Berry and David terer are buying JD right now but I also understand everybody that is selling because of the risks associated with this company let me know in the comments what is your take on jd.com is it a buy or should we avoid Chinese stocks Al together
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