(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
JD.com Inc. (JD) stock has fallen by more than 45 percent from its January highs. Now the stock looks like it may be heading even lower in the coming weeks by as much as 14 percent, based on technical analysis from its closing price of $29.50 on September 4.
The China-based e-commerce company has found itself at the center of the trade war between the U.S. and China. The NASDAQ traded stock disappointed investors when it missed earnings estimates by almost 52 percent reporting $0.52 per share. Adding more doubt to the stock was the recent arrest and release of the company's CEO.
The stock has fallen below a critical level of technical support at around $30. It suggests that shares fall to the next level of technical support at roughly $25.40. That is a decline of almost 14 percent from the stock's closing price on September 4.
The relative strength index (RSI) has also been trending lower since reaching an overbought level well above 70 in May of 2017. Now the RSI is hovering at oversold levels below 30. But the RSI's trend has yet to diverge from the falling stock price. It suggests that bullish momentum is still leaving the stock.
The bearish sentiment in the technical chart is likely a reflection of the deteriorating earnings picture. Over the past month, analysts have reduced their third-quarter estimates by more than 32 percent. Forecasts now see earnings for the quarter falling by more than 26 percent versus the same period a year ago to $0.17 per share, on rising cost. Revenue estimates have dropped by more than 2 percent, and are forecast to grow by 24 percent to $15.64 billion.
Over the past month, analysts have also slashed full-year estimates for 2018 by more than 36 percent to $0.40 per share, a drop of more than 26 percent compared to a year ago. Meanwhile, revenue estimates have dropped by more than 1 percent, and are forecast to grow by more than 20 percent to $68.72 billion.
JD EPS Estimates for Next Fiscal Year data by YCharts
Still worse, full-year earnings estimates drop as well, with the forecast declining by more than 40 percent to $0.90 per share down from estimates of $1.51 at the beginning of 2018.
The problems for JD, both from a technical and fundamental perspective appear to be steep. For now, it looks as if things may still get worse for the stock before it begins to get better.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.