Nasdaq listed PDD Holdings (NASDAQ: PDD) is the multinational commerce group that owns and operates a portfolio of businesses, including Pinduoduo and Temu, an e-commerce marketplace in North America allowing Chinese vendors to sell their products directly to US consumers.
This valuation seems far too cheap, for a company who is growing current revenues at +65% y/y (as of Q3 2022), expected to grow top-line at ~24% y/y over the next three years, and where we expect operating income to 2 – 3x over the same timeframe.
It seems the basis of this opportunity, lies in the investment community’s broad aversion to Chinese equities (especially internet companies), in addition to several company specific concerns:
- The Recent Chinese Equity Sell-off is Due to Politics, Not Fundamentals
- Lack of Communication with Investors
- Growth Ceiling Concerns
- Fears that Strong Results are Temporary
In the immediate future, PDD’s core business is going to be driven by three primary tailwinds:
- Factories are over-supplied, and brands need to destock inventory.
- China’s economic growth is slowing, which will encourage consumers to seek out more value-for-money shopping opportunities.
- Lower-tier cities will exhibit stronger consumption growth going forward.
Source: Pinduoduo Research Report (Hayden Capital) PDF File (37 Pages)
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