Granted, it US-listed stock has surged 43 per cent from a March low, but it is still trading at just 13 times expected earnings for the next year. That is half the valuation of the Nasdaq 100, marking PDD’s steepest discount on record.
That might seem like a great bargain for a company that more than doubled sales in the latest quarter, a pace of growth second only to Nvidia’s on the tech-focused index.
Some see the gap as justified given the harsh trade-war rhetoric from Beijing and both candidates in the coming US presidential poll.
“People are worried about election risks and potential tariffs coming for PDD, leading many to attach zero or even negative value to Temu,” said Shuyan Feng, deputy general manager for investment management at Huatai Asset Management (Hong Kong).
Not that investors have been avoiding PDD – its 43 per cent gain since March is 10 times the advance in the Nasdaq 100. But that has been far outpaced by the nearly 60 per cent rise in forward earnings estimates in the same span of time.
Goldman Sachs upgraded PDD to buy from neutral on Friday, citing the company’s strong revenue growth and advertisement technology capabilities. The main negative factors of tough domestic competition and tensions with the US are “more than priced in”, according to analyst Ronald Keung.
Except for PDD, all top 15 members of the exchange-traded Kraneshares CSI China Internet Fund have either a buy-back programme or a regular dividend payout policy in place.
One more thing that could be holding PDD back is its unclear information for investors. PDD does not report revenue by region, and its business segments can be difficult to parse.
“The main thing holding back on PDD’s valuation is the lack of disclosures,” said Xin-Yao Ng, investment director at Abrdn. “It’s very difficult to value domestic PDD and Temu separately, and that’s important because there’s definitely a big geopolitical discount on the stock due to Temu.”