Why JD.com Stock Lost Ground Today

JD.com (NASDAQ:JD) stock fell slightly in Tuesday's trading despite a day of small gains for the broader market. The company's share price closed out the daily trading session down 0.6%, according to data from S&P Global Market Intelligence. Meanwhile, the Nasdaq Composite index closed out the daily session up 0.3% and the S&P 500 index was up 0.1%.

While there doesn't appear to have been any business-specific news pushing JD's share price down, it looks like the company's valuation saw some downward pressure stemming from a competitor's strong earnings results. Pinduoduo (NASDAQ:PDD) posted very impressive third-quarter results before the market opened today, and the performance could hint at potential pressures for JD.

Competitive pressures could mount for JD

Pinduoduo's Q3 results crushed the market's expectations, and investors may be worried about what the strong results mean for JD. Pinduoduo recorded non-GAAP (adjusted) earnings per American depositary share of $1.55 on revenue of $9.44 billion. Meanwhile, the average analyst estimate had called for the business to post adjusted earnings per share of $1.16 on sales of $7.42 billion.

Will Pinduoduo's rise disrupt JD?

JD.com runs a premium-oriented e-commerce business. On the other hand, Pinduoduo's Temu platform is focused on discounted offerings and social-purchasing options.

While the two companies are significantly differentiated, there's still overlap in terms of potential customer bases and overall demand in the e-commerce space. Notably, Pinduoduo is rapidly gaining ground, and JD's growth has been much more muted recently. For comparison, JD's revenue grew roughly 1.7% year over year in its third quarter.

JD PE Ratio (Forward) data by YCharts

Pinduoduo's excellent Q3 results don't necessarily pose an existential threat to JD. With the stock trading at less than 9.5 times this year's expected earnings, strong performance from a rival also doesn't preclude JD from seeing strong share price gains. On the other hand, Pinduoduo is quickly gaining market share, and JD investors should keep an eye on the relative trajectories of both companies.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JD.com. The Motley Fool has a disclosure policy.