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Despite the solid return, JD could still deliver great returns for investors so long as it continues to grow its business value. Here, I’ll explore three ways the company can try to ensure its share price keeps going up.
JD.com’s core e-commerce business has been firing on all cylinders lately thanks to its double-digit growth on the top line and expansion of operating profit margin in the latest reported earnings.
Such performance was commendable, considering the disruptions caused by the Covid-19 outbreak in China.
Going forward, the company expects to continue to 1) grow its revenue and 2) expands its margin further – the e-commerce business should continue to benefit from the economies of scale of its growing business.
Both trends, if sustained for the foreseeable future, would generate enormous value to shareholders.
Logistics, healthcare, and finance
In addition to its mature e-commerce business, JD has a few younger businesses well-positioned to grow for the foreseeable future. Among these are JD Logistics, JD Health, and JD Digits (previously known as JD Finance).
There are many things to like about these three ventures. Firstly, all three companies operate in high-growth industries, which allows JD to reinvest its capital at a potentially high rate of return.
Secondly, these subsidiaries/associates have all reached a size that’s ripe for an IPO, which would allow JD to monetise its stakes in these businesses.
In other words, JD has many options to enhance the value of these three businesses, which include continuing to invest and grow the business, or to list the companies individually.
The third method with which JD can generate value for shareholders is to enter new, and high growth businesses.
Historically, the company has continuously nurtured new businesses – JD Logistics, JD Health, and JD Digits are examples of JD’s success in this aspect.
Lately, JD raised US$230 million (10.7%) in equity for its new business, JD MRO – a subsidiary operating an e-commerce platform that specialises in industrial maintenance, repair and operations (MRO) products and services for corporate clients.
It also launched a second logistics properties fund for its JD Property business segment. Hence, investors can expect the company to continue this strategy going forward.
Though not all ventures will be successful, there’s a good chance that JD will continue to nurture and grow successful businesses like JD Logistics or JD Digits.
Investing for the long term
Overall, I think JD.com has demonstrated a good track record of creating value for shareholders.
Hence, long-term investors may want to learn more about the company since it might make a good investment now.
1 China stock can a super star in US$400 billion industry
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.