JD, sometimes referred to as Jingdong, is a Chinese e-commerce company that is evolving to become the leading supply chain-based technology and service provider. This summary is based on a stock write-up by VIC, which highlights JD.com (JD) as undervalued at $26 per share—less than its cash value of $28 per share. Despite challenges like weak consumer demand in China, competition from Alibaba (BABA) and Pinduoduo (PDD), and a sluggish post-pandemic recovery, VIC presents a compelling bullish case for JD. JD shares currently trade at $35. We are going to summarize VIC's bullish thesis below:

A wide and imposing view of a supply chain distribution center, illustrating the company's technology capabilities.

Share Buy-Back Program

VIC identifies the share buyback as the strongest factor supporting the bullish case. JD.com (JD) has substantial effective cash reserves and prudent capital spending. In 2024, JD completed its previous buyback program, repurchasing 7.2%, or $3 billion, of its shares in just five months. This move exemplifies management's optimism about the company’s future growth prospects. With an additional $5 billion buyback program, JD is expected to continue reducing its shares in the market, potentially improving earnings per share (EPS) and enhancing shareholder wealth.

Growth in JD Retail and JD Logistics

From a practical standpoint, VIC notes that JD is registering growth across its JD Retail and JD Logistics service segments. Potential reasons for these improvements include supply chain efficiencies and scale benefits. JD Logistics, in particular, indicates a healthy incremental margin of 35%. Revenue is anticipated to grow steadily in the future, with JD Retail projected to deliver a CAGR of 3 percent, while JD Logistics is expected to expand by 10 percent. The total revenue is forecasted to reach approximately $180 billion by 2026.

Cash Generation and Financial Flexibility

VIC highlights that JD's cash generation capabilities appear robust, with estimates of free cash flow generation ranging from $14 billion to $21 billion over the next three years. This provides significant financial headroom for additional buybacks or pursuing growth opportunities.

Projected Stock Performance

At a projected price of $50 by 2026, JD has the potential for a 2-3x return, translating to a 40% internal rate of return (IRR). VIC concludes that JD's strong liquidity, ongoing buybacks, and margin expansion position the company well to create substantial shareholder value.

While we acknowledge the potential of JD as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than JD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.