This Unloved and Cheap Retail Behemoth Sets Up as a High‑Reward Trade
I'm making a bet on a tariff‑crushed online retailer with a buyback engine.
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Four weeks ago, I highlighted a promising covered call trade on a beaten-down and unloved consumer stock. That trade looks even more solid, if not a lock, after Under Armour (UA) , (UAA) reported quarterly results and lifted its full-year business outlook late this past week. The stock sprinted ahead 20% in trading on Friday.
We are going back to the till this week and profiling another unloved and beaten-down name. This one is even cheaper than Under Armour, although the company deserves some sort of discount given it is headquartered in China. We're talking about JD.com (JD) and it is our latest trade idea.
JD.com is the largest online retailer in China with some 700 million active annual users in the Middle Kingdom, the country’s Amazon (AMZN) . JD.com has approximately 10 million SKUs across ~10,000 online stores on its platform.
Most of the company’s revenues come from electronics and home appliances, as well as general merchandise such as personal care items, pharmaceuticals, books, automobile accessories, apparel, and footwear. JD.com also gets a smaller piece of its overall pie from service revenue, comprised of online marketplace and marketing, and a fast-growing logistics division as well.
The company is in the process of focusing more on international expansion. JD.com bolstered these efforts via the purchase 1,000-plus-storefront European electronics retailer Ceconomy for $2.5 billion which should close in the first half of this year.
The American Depository Shares (ADSs) of JD.com are down some 30% over the past year. They have been hit largely by concerns over the domestic (in China) ramifications of a tariff war, selling off 20% in short order when reciprocal tariffs were announced in early April.
The other main investor concern has been JD.com’s significant losses in its food delivery business, even as active customers from that segment were up 40% on a year-over-year basis in its last reported quarter.
The company’s EPS will be down roughly 40% when fiscal year 2025 closes out even as revenues rise in the high teens, weighed down by the losses from the JD.com’s food delivery business. The analyst consensus has profits bouncing back 20% in FY 2026 to just over $3.00 a share to more than $4.00 a share on revenue growth in the mid-single digits. The company has a solid balance sheet and a significant stock buyback program that has retired approximately 3% of the float through its reported quarters in FY 2025.
In addition, the company pays an irregular dividend that gets declared in March and paid in April of most years. The dividend has averaged roughly $1.00 a share from 2022-2025, which is what I will model for my covered call trade on JD.com. Tariffs and losses from the company’s food delivery business are legitimate concerns but seem fully priced in the shares, which currently trade at nine times forward earnings estimates.
Option Strategy
This is how one can initiate a holding in JD with a covered call order. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.
Using the September $27 call strikes, fashion a covered call order with a net debit in the $24.40 to $24.60 a share range (net stock price - option premium).
This strategy provides downside protection of 16%, including the projected $1.00 a share dividend payout, with upside potential of about 14% for the option duration even if the stock trades down 4%.
At the time of publication, Jensen was long UAA, JD and AMZN.
