PDD Holdings PDD, a popular Chinese e-commerce company, has seen its stock decline 5.7% in the year-to-date period, underperforming the industry’s decline of 5.1% and the S&P 500 index’s rise of 9.2%, respectively.
The company has been suffering due to weak market conditions in China. Declining export volume in the country is weighing heavily on Chinese e-commerce companies like Alibaba BABA and JD.com JD other than PDD Holdings.
Escalating tensions between the United States and China are also a concern. Although this geo-political technological war is not directly related to the e-commerce industry, its residual effect does not bode well for PDD and other similar companies.
Year-to-Date Price Performance
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PDD Holdings also faces stiff competition in the domestic as well as international e-commerce markets. Its global business is still in the exploration stage, and therefore, it continues to reel under competitive pressure from behemoths like Amazon AMZN, eBay and Alibaba.
Nevertheless, there is plenty of room for improvement in the global business, which bodes well for PDD’s long-term prospects.
E-commerce Business Strength Aids Prospects
PDD Holdings’ strength in its e-commerce business model, driven by solid momentum in its Pinduoduo platform, is a major positive.
The platform helps the company to cater to the growing online retail penetration. In this regard, PDD’s strong promotional activities also help in boosting customer engagement on its e-commerce platform.
A wide range of product offerings, which include agricultural produce, apparel, shoes, mother and childcare products, food and beverage, electronic appliances, furniture, and household goods, helps the company attract customers to Pinduduo.
In order to expand Pinduoduo offerings, it is continuously strengthening its relationship with top brands as well as small and medium merchants worldwide.
The company’s continuous efforts to tailor fulfillment solutions in different markets in order to improve supply-chain efficiency and reduce costs are major positives.
PDD Holdings’ deepening focus on technical advancement across its products and services is a plus. It intends to spend RMB 10 billion in 2024, its second straight year of investment at this scale.
The company’s strong positioning in the agriculture field on the back of Pinduoduo, which promotes the digital inclusion of smallholder farmers, is another positive.
Its strong partnerships with local communities, shops, farmers and agri-merchants are noteworthy. It is also supporting the new generation of farmers and merchants who are skilled in both agriculture and e-commerce.
In addition. PDD’s strong efforts to bolster its global business by expanding its supply chain, legal compliance and service capabilities are a plus.
Impressive Long-Term Projections & Liquidity Position
PDD Holdings’ deepening focus on long-term value creation on the back of a strong e-commerce business model, rising agriculture produce listings, technical advancements and growing relationships with various merchants are expected to boost its prospects.
The Zacks Consensus Estimate for 2024 revenues is pegged at $56.27 billion, indicating year-over-year growth of 62.4%.
The consensus mark for 2024 earnings stands at $12.32 per share, suggesting growth of 87.8% from the year-ago actual. The estimate has also been revised upward by 1.1% over the past 60 days.
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The company’s strong liquidity position remains noteworthy. Cash and short-term investments were RMB 242.1 billion as of Mar 31, 2024, compared with RMB 217.2 billion as of Dec 31, 2023. The company had no long-term debt as of Mar 31, 2024.
Valuation
PDD is currently trading at a discount with a forward 12-month P/E of 9.92X compared with the industry’s 14.83X and lower than the median of 19.37X. This indicates a solid opportunity for investors.
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It also has a Value Score of B and a Growth Score of A, which are hard to ignore.
Conclusion
The company’s strong e-commerce momentum, solid financial health, and rising earnings estimates define its fundamental strength. These make a compelling case for buying PDD stock at its current levels.
Currently, PDD Holdings carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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