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It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in JD.com (NASDAQ:JD). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
JD.com's Improving Profits
JD.com has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. In impressive fashion, JD.com's EPS grew from CN¥15.37 to CN¥28.72, over the previous 12 months. Year on year growth of 87% is certainly a sight to behold.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. JD.com maintained stable EBIT margins over the last year, all while growing revenue 6.8% to CN¥1.2t. That's a real positive.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
Check out our latest analysis for JD.com
Fortunately, we've got access to analyst forecasts of JD.com's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.
Are JD.com Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$50b company like JD.com. But we do take comfort from the fact that they are investors in the company. Indeed, they have a considerable amount of wealth invested in it, currently valued at CN¥5.7b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.
Should You Add JD.com To Your Watchlist?
JD.com's earnings have taken off in quite an impressive fashion. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, JD.com is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if JD.com is trading on a high P/E or a low P/E, relative to its industry.