JD.com Traders Bet Stock Will Fall 12% as Earnings Plunge

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JD.com Traders Bet Stock Will Fall 12% as Earnings Plunge

(Please keep in mind that the author of this fundamental study is also a financial writer and portfolio manager.)

JD.com Inc.’s (JD) stock has dropped 46% in 2018, but options traders predict it will drop another 12% in 2019. Technical analysis also suggests that the stock will fall further in the coming weeks.

The reason for the gloomy prognosis is that the corporation is expected to post results for a dismal third quarter on November 19. Analysts have been lowering their price goals and lowering their forecasts for the business in recent weeks.

JD data by YCharts

Bearish Bets

The options market for March 15 expiry reveals that the number of bearish put bets at the $22 strike price outnumber the number of bullish callbets by a factor of 16 to 1, with 16,000 open put contracts. To make a profit, a buyer of those puts would need the price to decline 12% to $19.85.

Weak Chart

The chart also suggests the stock declines in the coming weeks. Currently, it is falling below technical supportat $22.80. The next level of support on the chart would not come until $20, a decline of 11% from the current stock price of around $22.50.

Estimates Drop

Analysts are forecasting earnings to drop a stunning 50% in the third quarter to $0.11 per share. That is despite revenue rising by 22% to $15.4 billion. But those estimates have fallen dramatically in recent weeks.

Even worse, is that analysts see earnings for the full-year dropping by 39% to $0.32 per share in 2018. Meanwhile, revenue is expected to climb by 17% to $66.9 billion. Those estimateshave been steadily declining since September.

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JD EPS Estimates for Next Fiscal Year data by YCharts

Earnings and revenue estimates for next year and 2020 have been falling too. As a result, the average price target on the stock has dropped by 35% to $34.74 and is likely to fall even further.

The stock continues to struggle, and its high 2019 PE ratio of 30 does not help the shares current situationeither. For the JD.com to start rising again, it will need to post better than expected results and provide a positiveoutlook.

Michael Kramer is the Founder and Manager of Mott Capital Management LLC, a registered investment advisor, and the manager of the firm’s actively managed, long-only Thematic Growth Portfolio. Kramer normally purchases and keeps equities for three to five years. Click here to see Kramer’s profile and portfolio holdings. The information offered is only for educational purposes and does not constitute an offer or solicitation to sell or buy any particular stocks, assets, or financial strategies. Unless otherwise specified, investments involve risk and are not guaranteed. Before adopting any of the strategies outlined here, contact with a knowledgeable financial advisor and/or tax expert. The adviser will offer a list of all suggestions made in the previous twelve months upon request. Past performance does not predict future performance.

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