Behind The Idea #54: JD.Com And Pricing In Headline Risk
JD.Com is a value investor favorite and the 'hip' China play. Except that it had a terrible 2018, selling off more than 50% amidst China-U.S. trade negotiations and an accusation of rape against CEO and founder Richard Liu (charges not pursued). Seeking Alpha author Long Hill Road Capital argues that the company has hidden value and that the headline noise will fade. We take a closer look to see if there is value in JD's shares at this point.
Topics covered:
3:00 minute mark - Setting the bull case up 5:00 - Long Hill Road Capital's valuation approach to JD.Com, and the value of EV/Sales as an approach 11:00 - Adjusting for investments on the balance sheet - the right move? 18:00 - The limits to a sum of the parts approach, and a digression to Entravision (EVC) and Cars.Com (CARS), and Mike's pool cleaning valuation tactics 25:15 - How much of JD's problems are temporary vs. fundamental? 30:00 - The risks of investing in founder-CEO-led companies. 35:30 - Lightning Round - how big a deal is the trade war for JD, really? 39:15 - How enduring a problem are the headlines about Richard Liu's arrest and related accusations? 41:00 - How enduring are the Chinese governance issues? 43:00 - And lastly, what about the slowing China economy? 45:00 - Is all this priced in? Is it worth taking the company-specific risk?
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