Based in Shanghai, China, Pinduoduo Inc. (PDD) operates a mobile e-commerce platform called Pinduoduo, which is based on third-party social media channels. The company has built its platform to resemble a “virtual bazaar” where buyers can browse and explore a large range of products on while interacting with one another. The platform provides a range of online payment options that include Weixin Pay, QQ Wallet, Alipay and Apple Pay.
As the company has continued to invest in user growth, its annual spending per active buyer has increased 27% year-over-year to $293.6 for the 12-month period ended September 30, 2020. Its gross merchandise value (GMV) increased 73% year-over-year to $214.7 billion over the same period. Moreover, PDD’s revenue increased across both online marketing services and transaction services. Over the past year, the stock has rallied 339.3% to close yesterday’s trading session at $172.81. It was further driven by the investors’ speculation that a regulatory crackdown on the company’s rival Alibaba Group Holding Ltd (BABA) would be a positive for PDD.
However, the stock has lost 2.7% year-to-date. The news of the death of an employee, which sparked criticism concerning the company’s long working hours, along with back-and-forth announcements regarding the delisting of Chinese stocks in the U.S., are the key reasons for this decline. But as one of the leading Chinese e-commerce players, the company appears to have upside this year.
Investor optimism and potential upside based on several factors have helped the stock earn a “Buy” rating in our proprietary rating system.
Here is how our proprietary POWR Ratings system evaluates PDD:
Trade Grade: A
PDD is currently trading above its 50-day and 200-day moving averages of $152.04 and $95.75, respectively, indicating an uptrend. Moreover, PDD has gained 91.5% over the past three months, reflecting solid short-term bullishness.
The company’s top line has climbed more than 89% year-over-year to $2.09 billion for the third quarter ended September 30, 2020. Its revenues from online marketing services and others have increased 91.9% year-over-year to $1.9 billion, while revenues from transaction services have increased 66% year-over-year to $196.2 million. Its average monthly active users have increased 50% year-over-year to 643.4 million. PDD’s gross profit increased 92.8% year-over-year to $1.61 billion, and its EPS of $0.05 surpassed the Street’s estimate by 129.4%.
PDD announced on December 21 that a global institutional investor will purchase close to $500 million of new shares through a private placement. The financing will help PDD pursue its strategic priority of raising farm productivity and improving food security and quality. The company expects to use the proceeds to strengthen its balance sheet and make strategic investments.
In December, PDD announced that its technology has beaten farmers at growing strawberries in the inaugural Smart Agriculture Competition it organized. The competition ended on November 30. Also, PDD was named a pioneer in digital agriculture at a major conference in December, with its “cloud agriculture” model recognized as one of the top 10 achievements in digital agriculture in the world.
Buy & Hold Grade: B
In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers , PDD is well positioned. The stock is currently trading 7.9% below its 52-week high of $187.70, which it hit on January 6.
PDD has gained over the years based on its focus on user growth and continuous innovations to meet the market demand.
Peer Grade: B
PDD is currently ranked #17 of 103 stocks in the China industry. Other popular stocks in the China group are Bilibili Inc. (BILI), JD.com, Inc. (JD), and Alibaba Group Holding Ltd (BABA).
BILI beat PDD returning 447.9% over the past year, while JD and BABA have gained 137.4%, and 17%, respectively, over the same period.
Industry Rank: B
The China group is ranked #48 out of the 123 StockNews.com industries. The companies in this industry are located exclusively in China. China became the only major economy in the world to grow in 2020.
While the Chinese stocks have been volatile over the recent months as a result of confusing announcements regarding the delisting of Chinese stocks in the United States, they are expected to grow significantly based on growing demand, changing consumer behavior and the country’s fast-paced automation.
Overall POWR Rating: B (Buy)
PDD is rated “Buy” due to its short-term bullishness, solid growth prospects, and underlying industry strength, as determined by the four components of our overall POWR Rating.
PDD is strategically positioned to generate handsome ROI in the near term despite losing on a year-to-date basis, based on its unique business model, continued business growth, and favorable earnings and revenue outlook.
The consensus revenue estimate of $12.4 billion for 2021 represents a 55.8% increase year-over-year. Moreover, PDD’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters. Its EPS is expected to grow 160% for the quarter ended December 31, 2020, and 267.7% in 2021.
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PDD shares were trading at $170.75 per share on Friday afternoon, down $2.06 (-1.19%). Year-to-date, PDD has declined -3.89%, versus a 2.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More…
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