4
PDD Holdings Inc. (PDD)
- Equity
- China
- Consumer Cyclical
RISK
RETURN
Key risk factors
High price volatility
Good trading liquidity
Vulnerable to price shocks
Key return factors
Excellent growth
Very strong margins and returns
Very low or no dividends
Company profilePDD Holdings Inc., through its subsidiaries, operates an e-commerce platform in the People's Republic of China. It owns and operates a portfolio of businesses, including Temu, an e-commerce marketplace in the United States; and operates Pinduoduo, a mobile platform that offers a range of products, including apparel, shoes, bags, mother and childcare products, food and beverages, fresh produce, electronic appliances, furniture and household goods, cosmetics and other personal care items, sports and fitness items, and auto accessories. The company was formerly known as Pinduoduo Inc. and changed its name to PDD Holdings Inc. in February 2023. PDD Holdings Inc. was incorporated in 2015 and is headquartered in Shanghai, the People's Republic of China.
Valuation: Overvalued
Multiple
TTM
NTM
P/E
26.10
17.80
PEG
3.60
-
P/B
8.40
5.30
P/S
5.70
3.80
P/FCF
15.10
16.00
EV/EBITDA
19.00
52.30
From both historical and forecast perspectives, the stock is overpriced compared to similar stocks. In particular, the stock is reasonably priced on P/E, 'expensive' on EV/EBITDA, and trading at neutral levels on P/FCF.
Performance: Decent
Over the past six months, the stock has consistently climbed, resulting in 31% total increase. When compared to its international counterparts in the same sector and industry (as shown above), the stock has exceeded their performances, leading by 28ppts in total. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is mildly favourable.
Analyst view: Somewhat favourable
The average target price is 171 and suggests 12% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 240.7. This translates into 57% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 117.4. This is equivalent to 24% downside potential in the worst case.
Profitability: Very strong
RoE
PDD Holdings Inc. reported a return on equity (RoE) of 32.1% in the last 12 months, down from 39.4% in FY23. The market consensus projects an RoE of 57.2% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 17.2% in the last 12 months, a decrease from 20.5% in FY23. The market analysts predict that RoA will be 30.7% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) declined to 30.8%, above the peers. The consensus estimate for FY24 for RoCE is 57.4%, again ahead of the peers.
Net margin
EBITDA margin
Historically, PDD has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 24.2%, a growth from 24.2% in FY22. The company has reported good EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 29.0% in the last 12 months, up from 28.0% in FY22.
RoIC / WACC = 4.6(excellent value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 4.6 in the past several years. This ratio implies a excellent shareholder value creation. Growth: Excellent
Revenue
EBITDA
EPS
Free cash flow
PDD reported revenue of CNY 247 639mn in the last 12 months, up 90% from FY22. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS grew 91% from FY22 to CNY 44.12. Market expects EPS to reach CNY 79.04828 in FY24.Revenue has been growing rapidly in the past several years (strongly positive), while EBITDA has grown very rapidly in recent years (positive). This all contributed to very fast EPS growth (strongly positive). Free cash flow naturally followed the growing EBITDA trend. We emphasize the highly volatile dynamics of all key metrics. This is an extremely negative factor.
Dividends: Very low or none
The company does not pay dividends at all, or it pays them sporadically.
Default risk: Moderate
The risk of default is moderate. We note strong positions in its industry, resilient historical revenue growth, robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to excessive margin volatility, and poor working capital management.
Volatility: High
In normal market circumstances, PDD is highly volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will change somewhat erratically. The stock's losses on its worst days (less than 1-5% of the time) will range from significant to immense. We would also like to highlight the immense intraday volatility of the instrument.
Stress-test: Meaningful
In highly turbulent market conditions, PDD is volatile. In other words, the stock will fall much more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be large.
Selling difficulty: Low
PDD boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains mildly favourable on the days with the lowest activity. However, please consider that under highly turbulent market conditions, the trading volume tends to decrease significantly.
Country risk: Low
The institutional, legal, and compliance risks associated with the company's country are close to minimal. In combination with rigorous business standards, shareholder rights are well protected.
Other risks: Negligible
No other major risks have been identified.