JD's 11% Drop Trails Sector in 6 Months: Buy, Sell or Hold the Stock?

Core Insights - JD.com shares have declined 11.2% over the past six months, underperforming the Zacks Retail-Wholesale sector's return of 6.6% and the Zacks Internet-Commerce industry's increase of 5.3% [1][9] - The stock's decline is attributed to profitability concerns stemming from new business investments, slowing growth in electronics after the end of government subsidies, and ongoing losses in food delivery [1][9] Financial Performance - JD's food delivery segment reported an operating loss of RMB 15.7 billion in Q3 2025, reflecting a shift to a hyperlocal logistics network that increases operational complexity [5] - The Zacks Consensus Estimate for JD's Q4 EPS is 56 cents, down 45.1% year over year, indicating continued profitability pressure [9][11] - Free cash flow decreased to RMB 12.6 billion as of September 30, down from RMB 33.6 billion a year earlier, highlighting the impact of capital-intensive growth [10][11] Competitive Landscape - JD faces intense competition from Meituan, PDD Holdings, and Alibaba, leading to increased marketing expenses, which surged 110.5% year over year in Q3 [8] - PDD Holdings' aggressive discounting and Alibaba's asset-light strategy are exerting pricing pressure on JD, particularly in low-margin categories [8][11] User Engagement and Growth - JD's annual active customers surpassed 700 million in October 2025, with quarterly active users and shopping frequency both increasing over 40% year over year in Q3 [12] - Revenue from core retail reached RMB 250.6 billion in Q3, with operating margin improving to 5.9% from 5.2% a year earlier [13] Revenue and Valuation - General merchandise revenues grew 18.8% year over year, while marketplace and marketing revenues increased by 23.7%, driven by higher merchant participation [14] - JD shares trade at a forward P/E ratio of 9.33x, significantly below the industry average of 23.69x and the sector average of 24.52x, indicating a valuation discount [15][16] Strategic Outlook - The current valuation discount reflects a transition phase rather than structural weakness, with ongoing investments in food delivery and logistics expected to broaden JD's growth potential [16] - Despite near-term profitability pressures, JD's resilience in user engagement and revenue mix suggests potential upside as operating efficiency improves [19]