As Cathie Wood dumps over 200k JD.com shares, is it time to sell?

On Wednesday, Cathie Wood’s ARK Invest revealed that it sold more than 200,000 shares of JD.com Inc. (BER:013C) stock. Wood’s investment company focuses on high-growth stocks. The firm dumped several shares of Chinese companies citing a decline in the valuation of the stocks. 

JD shares fell about 1.40% in the intraday trading for a total decline of approximately 30.60% since the stock price peaked on 19th February. The Beijing-headquartered e-commerce company’s recent stock price decline could be perceived as an opportunity to buy, so why is Cathie Wood selling?

Is Cathie Wood right to dump JD stock in Q3 2021?

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From a valuation perspective, JD stock trades at an attractive P/E ratio of just 14.96, representing an attractive proposition to buy the stock. However, the company’s shares are priced at a higher forward P/E ratio of 32.29.

Conventionally, the forward P/E ratio should be lower than the trailing P/E ratio to justify buying a growth stock. Therefore, since JD stock trades a higher forward P/E than the trailing P/E, it explains Cathie Wood’s decision to sell more than 200,000 shares of the company.

Analysts expect JD.com’s EPS to grow by 287% this year and at approximately 57.89% next year. Therefore, it is possible that the current stock price already prices in this year’s growth prospects. As such, with earnings growing at a slower pace next year, JD shares may represent less value for money than they did at the start of this year.

Technical overview

Technically, JD stock price appears to have made a bullish breakout from a descending channel formation in the daily chart. The stock is yet to hit overbought conditions after the recent rebound. It implies a potential upward movement before a significant pullback.

Investors can target extended rebound profits at approximately $80.80 and $89.66. The key support levels are $68.14 and $59.60.

Bottom line: JD stock offers low upside potential in Q3 2021

Although JD.com shares could still add gains to the current rebound, the upside potential is limited. It is unlikely the stock will retest this year’s highs before the end of the year, given earnings growth expectations for next year relative to this year’s.

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