Some analysts said shares of Chinese low-cost e-commerce giant Pinduoduo tumbled on Monday but were still worth buying. The Nasdaq-listed stocks fell nearly 29% and fell further on Tuesday and Wednesday. The stock has fallen about 36% so far this week. Pinduoduo, which owns discount platform Pinduoduo in China and Temu in the international market, reported second-quarter earnings that fell short of expectations. Its revenue was 97.06 billion yuan (US$13.6 billion), an increase of 86% over the same period last year. The figure was lower than analysts’ average estimate of about 100 billion yuan, according to LSEG. CoreValues Alpha founder and portfolio manager Ben Harburg pointed out that in its most recent financial report, “the thing that worked against them” was that Pinduoduo has been using its strong performance in China, where Pinduoduo has been a dominant player, to subsidize its global business. dominant position. “So as Temu expands into Western markets and more markets with higher margins using its China base, they’re able to subsidize Temu’s significant growth, but now China Harberger said the problem is that Pinduoduo faces market saturation — competition from JD.com, Alibaba, Shein and Amazon — and slowing consumer growth in China. He said that despite these challenges, PDD remains a long-term buy and described the stock’s plunge as an “overreaction” by the market. “We believe this business is very strong over the long term. Not only is it performing well in China, but it’s clearly dominant in emerging and mature markets as well,” he said, adding that the stock would “move slightly higher” in 2020. rebound”. in the coming months. He believes that as property prices stabilize – China has been facing a real estate crisis – consumption in the country will improve. In a report on August 27, HSBC also maintained a buy rating on Pinduoduo but lowered the stock price target to $189 from $208. The company said it remains confident that Pinduoduo’s overseas growth and profits “can show resilience” despite recent headwinds. “Pinduoduo’s more cautious comments, weaker-than-expected domestic results and lack of commitment to shareholder returns may weigh on the stock price, especially in the short term. But we think valuations remain attractive (9x FY24 P/E),” HSBC analysts Charlene Liu and Charlotte Wei said. The company said Temu still leads overseas markets in terms of user growth and diversification. Morningstar lowered its fair value estimate for the stock by 26% to $171. Chelsey Tam, senior equity analyst at Morningstar, pointed out that Pinduoduo said that long-term profitability decline is “inevitable” and that profit margins will fluctuate in the short term. However, Tam believes that Pinduoduo’s share price is “still cheap” compared with the profit growth of Temu’s business. Overall, 32 analysts covering the stock have cut their price targets in the past seven days. The current consensus price target is $172.29, leaving about 79% potential upside.
