China's e-commerce market is poised for strong growth in 2024, driven by a recovering economy, rising consumption, and technological advancements. Additionally, mobile shopping and digital payments will lead the way, while trends like augmented reality, social commerce, and live streaming will further enhance market prospects.

Given this promising backdrop, investors might consider adding fundamentally strong Chinese e-commerce stocks, such as Alibaba Group Holding Limited (BABA) and JD.com, Inc. (JD), to their portfolios for solid gains.

China’s economy grew 4.7% in Q2 2024, missing expectations due to a property slump and weak consumer spending. However, infrastructure investments and high-tech manufacturing are promising. Exports are expected to rise by 4.3%, and overall economic growth is projected at 5%. These factors suggest a favorable outlook for investment despite slower consumer spending.

Notably, China's e-commerce sector is booming, with online retail sales rising 9.8% to RMB 7.1 trillion ($979.25 billion) in H1 2024. This is driven by rising investments in AI and technology, as well as by digital products, services, and trade-ins. Furthermore, e-commerce revenue is expected to reach $1.47 trillion in 2024 and grow annually by 9.95%, reaching $2.36 trillion by 2029.

Considering these encouraging trends, let’s discuss the fundamentals of the two China stock picks, starting with the second choice.

Stock #2: Alibaba Group Holding Limited (BABA)

Based in Hangzhou, People's Republic of China, BABA provides technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses engage with their users and customers internationally.  It operates through seven segments: China Commerce, International Commerce growth, Local Consumer Services, Cainiao, Cloud, Digital Media and Entertainment, Innovation Initiatives, and Others.

On July 23, 2024, BABA reported that its generative AI toolkit, "Aidge," is now used by 500,000 merchants and has seen API calls double every two months. The AI tools have enhanced over 100 million product listings, boosting operational efficiency and market reach across e-commerce platforms.

On June 7, 2024, BABA announced its partnership with UEFA EURO 2024 as the official B2B e-commerce partner, aiming to support SMEs with exclusive deals and sourcing tools. This collaboration complements BAAB’s B2C sponsorship and focuses on enhancing SME success during the tournament.

In terms of the trailing-12-month EBITDA margin, BABA’s 19.47% is 70.7% higher than the 11.41% industry average. Its 13.04% trailing-12-month levered FCF margin is 143.4% higher than the 5.36% industry average. Likewise, the stock’s 4.53% trailing-12-month Return on Total Assets is 7.7% higher than the 4.21% industry average.

For the fourth quarter that ended March 31, 2024, BABA’s revenue increased 6.6% year-over-year to RMB221.87 billion ($30.60 billion) and its income from operations was RMB14.77 billion ($2.04) billion for the quarter.

BABA’s non-GAAP net income and EPS came in at RMB24.42 billion ($3.37 billion) and RMB1.27 for the quarter, respectively. Furthermore, the company’s adjusted EBITDA was RMB30.81 billion ($4.25 billion) for the quarter.

Street expects BABA’s revenue for the quarter ended June 30, 2024, to increase 5.2% year-over-year to $34.12 billion. Its EPS for fiscal 2026 is expected to increase 11.8% year-over-year to $9.23. It surpassed the Street revenue estimates in three of the trailing four quarters. Over the past six months, the stock has gained 4.3% to close the last trading session at $76.53.

BABA’s POWR Ratings reflect a positive outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a B grade for Momentum and Quality. It is ranked #13 out of 40 stocks in the B-rated China industry. To see BABA’s Growth, Value, Stability, and Sentiment ratings, click here.

Stock #1: JD.com, Inc. (JD)

Headquartered in Beijing, JD provides supply chain-based technologies and services in the People's Republic of China. The company offers computers, communication, and consumer electronics products, as well as home appliances and general merchandise products.

JD’s 1.91x trailing-12-month asset turnover ratio is 93.3% higher than the 0.99x industry average.

During the fiscal first quarter, which ended on March 31, 2024, JD’s total consolidated net revenues increased 7% from the prior-year quarter to RMB260.05 billion ($35.87 billion). Similarly, its income from operations stood at RMB8.88 billion ($1.22 billion), up 12.7% year-over-year.

For the same quarter, the company’s non-GAAP net income attributable to the company’s ordinary shareholders amounted to RMB8.90 billion ($1.23 billion) and RMB5.65 per ADS, up 17.2% and 18.7% from the year-ago value, respectively.

Analysts expect JD’s EPS and revenue for the quarter ended June 30, 2024, to increase 14.7% and 1.8% year-over-year to $0.85 and $40.18 billion, respectively. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters. Over the past six months, the stock has gained 11.3% to close the last trading session at $26.56.

JD’s favorable prospects are reflected in its POWR Ratings. It has an overall rating of B, translating to a Buy in our proprietary rating system.

It has an A grade for Growth and a B for Value and Sentiment. It is ranked #6 in the China industry. Beyond what we have stated above, we have also rated JD for Momentum, Stability, and Quality. Get all the ratings of JD here.

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BABA shares were trading at $78.68 per share on Monday afternoon, up $2.15 (+2.81%). Year-to-date, BABA has gained 3.69%, versus a 15.45% rise in the benchmark S&P 500 index during the same period.

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.

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