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Earnings & Price Expectations: Alibaba, JD, Walmart

May 02, 2021 7:04 PM ETBABA, BABAF, JD, JDCMF, WMT26 Comments


  • Stay away from Walmart & Alibaba, Buy JD if you're an earnings speculator.
  • Walmart and Alibaba will benefit financially on a fundamental basis but not from an accounting basis. JD will benefit from both.
  • JD shows real value whilst Alibaba and Walmart are priced in and lack momentum.
  • Walmart share buybacks might increase EPS, but analysts remain tentative. Alibaba's EPS surprises are narrowing.
  • JD has an asset-based valuation, which shows deep value. Accounting metrics were conservative in 2020, it's a buy.

Dollar in large birdcage - Businessman
Photo by GelatoPlus/DigitalVision Vectors via Getty Images

We wrote this article to better inform short-term earnings speculators on 3 stocks that are highly popular. Our aim was to contextualize what it takes to beat earnings beyond 'common sense'. We subsequently placed a

This article was written by

Pearl Gray is a Proprietary Investment Fund and Market Research Firm with an emphasis on systematic risk analysis and bottom-up exploration. Our coverage includes developed market stocks, emerging market stocks, ETFs, CEFs, REITs, and Fixed-Income vehicles.A worthwhile consideration: Investment returns stem from systemic risk + company-specific risk + skill + luck. Do not underestimate the magnitude of luck. Happy investing, everyone!

Analyst’s Disclosure: I am/we are long WMT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (26)

Pearl Gray Equity and Research profile picture
**Note: Readers should understand that this article is based on earnings reports and subsequent price moves. It's not an article based on economic performance.
I have never liked JD due to the CEO's poor judgment of being arrested in the USA for alleged rape. There is an old expression in medicine... Beware the surgeon who is good at getting out of tight spots. I don't want the surgeon that gets into tight spots in the first place. This is the story with JD.

Comparing Walmart to Alibaba and JD is akin to comparing street lamps to canned oysters. Compare Walmart to Amazon. In that contest, both Amazon and Walmart are great companies but they live in an over-regulated, soft country with people with their hands out. So Walmart is forced into minimum wage or higher just to play politics. Amazon has to fight both Reps and Dems pushing unions down their throats.

Comparing JD to Alibaba is like comparing a rabbit to a rabbit's foot. JD is smaller and was at least more focused on international products. While both companies are innovative with driverless trucks and drone deliveries, Alibaba has the Cloud. And that makes all the difference. Treating Alibaba as a mere retailer of consumables misses the girth and mass of Alibaba which is the cloud.

The same could be said of Amazon. The Amazon cloud and the many innovations associated therein for product and content producers is stunning. Can Walmart top that. No Giant scale with less brains won't defeat Amazon.

Alibaba has the largest cloud in the world available in all of Asia, China of course as well as the USA.

The greatest myth of Asian companies is that their growth will slow like some kind of old General Electric. If one were to examine the Chinese and Asian markets, already the largest in the world, these markets are still infants growing at 9% a year. Alibaba could easily scale 20 times its present size before showing any slowing.

As an aside, I think buybacks are a waste of capital which would better serve to expand a company and its markets. Look at Walmart. They should be in the insurance business, banking business, and should have Walmart pay around the world. But they don't. The Walmart family are rich but not smart. They are low tech and in most cases get into lawsuits with their neighbours over noise ordinances and other silly worthless bickering.

Walmart in its heyday of growth, not merely replication growth, took chances. Walmart should be delivering goods like Amazon. They ran their grocery pickup for three years limiting pickup to groceries only. Finally about six months ago said you could buy Walmart store products other than groceries for pickup. Why did this take so long? The board of Directors are political people and dead between the ears. But they have no trouble approving buybacks which raise the Walmart "kid" stock value.

Regardless of the USA and their endless recycling of anti-Asian xenophobia from Japan in WWII, to North Koreans in Korea, to Vietnamese from the Vietnam War, to the new Nancy Kerrigan knee capping strategy to slow down the Chinese growth... ALL will fail. Why? Simple.... If you need a carburettor for your lawnmower and you can buy a kit from Asia for $18 which includes the plug cable, filter, magneto, and new carb, and spark plug, and shipping, ADAM SMITH says you will buy from the lowest cost producer that gives you the best quality. Thus the flow of Capital in Capitalism is like the great tides. Xenophobia and trying to convert businesses into some kind of extension of the welfare system always fail. The moral indignation of the unskilled US labourer that thinks you should pay $180 for a carb kit so the unskilled in America can keep employed is 180 degrees from reality. No consumer wants to pay the Corporate WELFARE price for anything. Now at long last, the claim that Murican products are better than Chinese products is Dead on Arrival. Nothing shows this more than the aftermarket automotive parts markets.

The screams of the ignorant used to target Japanese products as junk. The cycle of Russian Roulette Xenophobia continues with the dopes screaming Chinese JUNK PRODUCTS. Of course, these losers are not in the market for a Concert Piano where the Chinese at Pearl River lead the world and manufacture all the great names at their plants in Pearl River. The louder the unskilled and uneducated screamed at Sony and Toyota, and Honda, the stupider they looked as Japanese manufacturing became dominant. China now has their own brands offering superb quality in hand tools, consumer goods, Shipbuilding etc.

Bottom line... ALIBABA has the cloud and the cost of entry to compete is too high. Alibaba's ability to grow globally is UNMATCHED by any company in any country. Capitalism beats protectionism every time.
WhiteCollarNomad profile picture
@Cash McCall Wow. You were born a century too late, this sounds like a Gilded Age point of view: screw everyone, get rich, no rules.
Pearl Gray Equity and Research profile picture
@Cash McCall One shouldn't confuse economic reality and the way the market moves. It's two different worlds.
@Cash McCall Agree with the rape allegation. Very unfortunate because I think JD is a very good company
Do you have a look at the quality of JD's investment in equity investees?
companies such as Younghui, Bitauto, Dada, Tunin that JD invested.
Pearl Gray Equity and Research profile picture
@Visawachit Inthasuwan Aware of all of its acquisitions but the article is based on financial reporting and subsequent market reaction.
What I can tell you is that Alibaba will smash again every expectations,like always....the problem about Baba ist all the corrupt Media....about shareholders don’t worry because in the long run this company is a healthy Munster,we talk after earnings,but please after they will smash again the expectations then write again about it 👍
Pearl Gray Equity and Research profile picture
@Alin11 not a very constructive argument. Circle back on gains/losses in respective stocks at year’s end.
Hope your right I have quite a few in the money JD contracts set for expiration 6/18/21
Lol this article is so wrong on so many fronts. Not taking into account the extremely, insanely low valaution on baba. It won’t take much to move the stock.

Usually when valuations are inflated, companies need to blowout earnings to move. When companies are valued extremely low (like babe) any earnings suprised are a positive. I expect this to be the case here.
Pearl Gray Equity and Research profile picture
@Tdog88 Thanks for the comment, provide us with your valuation.
@Pearl Gray Equity and Research alibaba’s current valaution is about $620B with a PE of 26x.
Now taking into account the China risk premium, some of this is justified. But with its upcoming growth drivers (dominating China cloud market, new EV partnership, logistics division, and booming Chinese economy) and current growth rate YoY, I think an extremely conservative PE 39x is reasonable (I think Amazon is around 70x), 50x PE is this were a US based company. Putting the valaution a little north of $900B.
The stock is beat down because the China regulatory crackdown and emphasis on Jack Ma owned businesses. So knowing that, the expectations will be a lot lower. For example, Apple and Amazon are valued very high right now and not even blowout earnings moved the stock. But the beat down stocks (value stocks) have been moving on earnings where they “didn’t lose as much money as originally thought”. That’s what you should expect from Baba, low expectations which should move the stock from beating estimates. If Baba were trading at a 40x-50x PE, I would agree with you. But you missed a very important variable in all of this - the already rock bottom Valaution.
@Tdog88 traders have been avoiding BABA like the plague. I love them and want them to go up so bad but everytime I trade BABA I lose money or break even. I had a good trade w them a couole weeks ago w the surprise end to anti trust investigation took us above 240 but it has settled back in the 30s. bABA has been a hard pill to swallow
killoranf profile picture
Re BABA, paying a deferred tax liability doesn’t drive down earnings. It’s a balance sheet adjustment only.
Pearl Gray Equity and Research profile picture
@killoranf Thanks for the input, it will drive down reported earnings. The link below should explain it to you.

Your call on BABA will be wrong
Pearl Gray Equity and Research profile picture
@ryan1997 Let’s circle back in 12-months.
maybe over the next month but JD will not beat alibaba over the next year.
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