JD.COM INC-ADR (NASDAQ:JD) Fits Peter Lynch’s Growth at a Reasonable Price (GARP) Strategy

Peter Lynch’s investment strategy centers on finding companies with steady growth at fair prices, commonly known as the Growth at a Reasonable Price (GARP) method. His approach prioritizes solid financials, consistent profits, and controlled debt, steering clear of overly hyped or rapidly expanding businesses that may not last. Key factors include a PEG ratio under 1 (showing the stock is priced fairly compared to its growth), a stable balance sheet (low debt-to-equity), high return on equity (ROE), and reliable earnings growth.

JD.COM INC-ADR (NASDAQ:JD) appears to align with this strategy based on the screening criteria.

Why JD.com Matches the Peter Lynch Criteria

1. Fair Price Compared to Growth (PEG Ratio)

   • The PEG ratio, which modifies the P/E ratio for growth, is 0.25, far below Lynch’s benchmark of 1. This implies the stock is priced low relative to its earnings growth.
   • JD’s 5-year EPS growth of 26.75% is solid but falls within Lynch’s preferred range (15%-30%), avoiding extreme expansion.

2. High Profitability (ROE > 15%)

   • With an ROE of 19.26%, JD does better than 75% of its broadline retail competitors, showing effective use of shareholder funds, a critical Lynch measure.

3. Low Debt (Debt/Equity < 0.6)

   • JD’s debt-to-equity ratio of 0.24 matches Lynch’s liking for financially secure companies. He preferred ratios under 0.25, and JD meets this strict requirement.

4. Good Liquidity (Current Ratio > 1)

   • The current ratio of 1.26 shows enough short-term liquidity, though JD’s quick ratio (0.92) is slightly below the ideal level, a small issue in an otherwise strong profile.

Financial Strengths and Weaknesses

JD’s fundamental analysis report reveals a mixed but encouraging outlook:

• Valuation: JD trades at a P/E of 6.7, much lower than both industry peers and the S&P 500.
• Growth: Past EPS growth (26.75% yearly) and projected future growth (~25.75%) point to continued progress.
• Profitability: Margins are rising, though gross margins (16%) are below industry norms.
• Liquidity: While the current ratio is acceptable, the quick ratio suggests tighter cash flow management.

Why This Is Important for GARP Investors

Lynch’s strategy skips risky bets, focusing instead on companies with clear growth paths and fair prices. JD’s mix of earnings growth, minimal debt, and low valuation fits this model. Its role in China’s e-commerce sector, a market with long-term growth opportunities, adds to its appeal, provided geopolitical and regulatory risks are watched.

Find More Peter Lynch Screen Results

For investors looking for similar options, the Peter Lynch Stock Screener provides additional stocks meeting these standards.

Disclaimer: This article is not investment advice. Do your own research or consult a financial advisor before making investment choices.