After dropping 61% over the past year, is this e-commerce stock entering cheap territory?

The past 12 months have been a generally strong period for e-commerce stocks.companies like Amazon, Shopify, mercadolibreand pinduoduo Their stock price has increased by at least 30%.

However, there were also underdeveloped countries in this industry. JD.com (J.D. -5.35%), the company’s stock price has fallen 61% over the past year. With the stock currently down 78% from its all-time high, JD.com is attracting some investors looking to take advantage of a potential bargain.

But before we jump into the stock market, we need to understand how JD.com got here in the first place. Only then can you make informed investment decisions.

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Rise of the Chinese Amazon

JD.com is one of the most successful companies to replicate Amazon’s strategy.

The e-commerce giant operates its own e-commerce business in China by selling a wide range of products directly to customers. It also operates a third-party marketplace that allows other sellers to join its platform in exchange for paying a fee for each successful transaction.

The company emphasizes low prices to entice customers to buy over the long term and operates complex logistics services to provide fast delivery. Low prices and fast delivery lead to strong customer retention and increased sales, giving JD.com the scale it needs to further lower prices and continually improve its services.

Customers love this approach, which is why the company has experienced continuous growth over the years. For comparison, from 2017 to 2021, revenue grew at an average annual rate of 27%. Until recently, everything seemed to be going in the right direction.

JD.com is currently facing major challenges

Investors used to such impressive performance were disappointed when the e-commerce company reported only 10% revenue growth in 2022. The following months were even more difficult for the company, with revenue growth declining to just 2% in his third quarter of 2023. In fact, its own e-commerce business was down 1% year over year, masked by his 13% increase in services revenue.

To add insult to injury, competitor PDD Holdings reported 94% revenue growth in the quarter.flat alibabafaced unique challenges and reported 9% growth.

JD.com has not been able to keep up with the competition. It didn’t help that previous CEO Xu Lei resigned in May 2023 after just one year, adding further uncertainty to the company’s future.

The silver lining here is the fact that the company remains profitable with a strong balance sheet. JD.com generated free cash flow of RMB 39 billion ($5.4 billion) for the 12 months ended September 30, 2023. It also had 242 billion yuan ($33.2 billion) in cash and short-term investments. This strong financial position allows JD.com to continue investing in areas such as live streaming shopping, supply chain improvements, and other initiatives.

Still, investors need to recognize that the road ahead remains difficult, as the company needs to outpace rivals such as Alibaba, Pinduoduo and Douyin.

Is JD.com stock a bargain right now?

In other words, JD.com is at a crossroads. Despite past successes, the future is now far less uncertain as the industry becomes more competitive and faces increased regulatory scrutiny.

Considering the recent bearish mood, JD.com stock trades at a significant discount compared to other e-commerce companies at a price-to-earnings (PE) ratio of just 10.2x, while Pinduoduo’s stock trades at a price-to-earnings (PE) ratio of just 10.2x. It is traded at PER.

Investors will need to keep an eye on JD.com’s recovery efforts in the coming quarters for clues about its progress. If the company can maintain its position as China’s top three e-commerce platform and reignite growth, its current stock price should prove to be cheap.