Pinduoduo's stock price exploded and rose 120% in a year! Can I still enter the venue now? What are the potential risks?

Pinduoduo's stock price soared by more than 120% over the past year. Thanks to dynamic momentum and the positive impact of EPS ratings adjustments, SA Quant ratings continued to rise.

Pinduoduo's revenue TTM grew at an annual rate of nearly 90%, operating profit increased by 93%, and earnings per share increased by 87%. At the same time, its margin on leveraged free cash flow reached 33%, and the return on equity reached 40%.

Pinduoduo's earnings report for seven of the past eight quarters exceeded expectations, showing impressive profit growth. Earnings per share for the next quarter are expected to increase 48% year-on-year and revenue increase by 98%.

Despite the rapid development of Pinduoduo, its stock price showed stable performance. The 60M beta coefficient was 0.68, and the volatility was significantly lower than the market.

Pinduoduo was highly recommended by the SA Quant team as a stock purchase due to its high profit margin, excellent profit growth potential, solid financial situation, and continued market momentum and stability.

Pinduoduo (NASDAQ: PDD) is a rapidly developing, financially strong company with excellent profitability. The stock price increased by more than 120% last year, and the market's profit expectations continued to rise.

Pinduoduo's “Strong Buy” rating has risen from 4.61 to 4.95 since the earnings report was announced on March 20 and listed as a top Chinese stock by the Seeking Alpha quantitative team. Thanks to dynamic momentum and rising earnings per share adjusted ratings, Pinduoduo rose nearly 20% over the past month, significantly ahead of the S&P 500 Index and the Consumer Optional Consumer Goods Index (XLY).

Over the past 12 months, the company's revenue increased nearly 90% year over year, and operating profit and earnings per share increased 93% and 87%, respectively. According to market consensus, the company's earnings per share are expected to increase by 30% in fiscal year 2024, and revenue growth will be close to 50%.

The SA Quant team once again emphasized giving Pinduoduo a “Strong Buy” rating in light of continued market momentum and impressive growth rates at all levels, and strong long-term profit prospects based on forward-looking quantitative indicators and market forecasts.

Total market value: $192.54 billion

Quant Rating: Strong Buy

Quant Division Rankings (as of May 7, 2024): 4th (516 companies ranked in total)

Quant industry ranking (as of May 7, 2024): No. 1 (total of 30 companies ranked)

Pinduoduo is a Chinese e-commerce platform owned by PDD that sells various products such as agricultural products, clothing, electronic products, furniture, personal care products, and auto parts. Pinduoduo also owns the online marketplace and mobile app Temu, which was founded in 2022.

Among large-scale retail stocks with quantitative ratings, Pinduoduo ranked first, and ranked fourth in the consumer optional consumption category. The stock price has risen by more than 120% over the past year, and has risen by about 18% in the last 30 days.

SA Quant ratings provide immediate stock analysis by comparing with more than 100 industry-related indicators and scoring on five factors: valuation, growth, profitability, market dynamics, and EPS adjustments. Over the past 60 days, Pinduoduo's “Strong Buy” rating has risen from 4.61 to 4.94 due to increased market momentum and profit expectations.

Pinduoduo was rated A in terms of growth, profitability, market dynamics, and EPS adjustments, and received a D+ rating in terms of valuation. Pinduoduo also received a buy rating from SA analysts. Out of 43 seller analysts, 34 gave a “strong buy” rating, and the Wall Street average target price showed that its stock price had room for growth of about 30%.

In the last eight quarters, Pinduoduo has exceeded market expectations in its financial reports for seven quarters. In the fourth quarter of 2023, Pinduoduo reported earnings per share of US$2.41, US$0.75 above expectations, and total revenue reached US$12.35 billion, a year-on-year increase of 113.26%, exceeding market expectations of US$1.5 billion. In fiscal year 2023, 62% of revenue came from online marketplace services, while transactional services contributed 38% of revenue.

Pinduoduo is expected to release its first quarter earnings report on May 29, 2024. The market has high expectations for this, and it is generally expected that its earnings per share will increase 48% year over year. According to market consensus, Pinduoduo's earnings per share for the 2024 fiscal year are expected to increase by 30% to reach 8.46 US dollars, and total revenue is expected to increase by nearly 50% to reach 51.41 billion US dollars.

In the past 90 days, Pinduoduo's earnings per share target has been raised 27 times, and there has been no reduction. The earnings target per share for the 2024 fiscal year was raised 15% in these three months.

Pinduoduo's performance in terms of profitability was outstanding, receiving an “A+” rating. Its gross margin was as high as 62%, operating profit margin of 23.7%, and net profit margin of 24%. What's more remarkable is its leveraged free cash flow margin of 33%, which is 480% higher than the industry median.

Furthermore, Pinduoduo achieved 39% return on shareholders' equity (ROE), 22% return on total capital (ROTC), and 17% return on assets (ROA). These indicators show that the company is extremely efficient in using shareholders' equity and total capital.

Pinduoduo has shown significant growth in all aspects, and according to key future quantitative indicators, it also has strong long-term growth potential. Since 2019, Pinduoduo's annual revenue has increased eight times, from US$4.33 billion to US$34 billion. Consensus forecasts show that by 2025, its annual sales are expected to reach US$64 billion.

Leveraged free cash flow surged 114% year on year. The future free cash flow rate per share is expected to grow by 44%, far exceeding the industry average of 12%; future operating cash flow growth rate is 42%.

Profit before interest and tax increased 93% year over year, far exceeding the industry average of 1.5%. The expected future growth rate is 47%, which is also significantly higher than the industry's 3%. Annual earnings per share increased 87%, and are expected to grow by nearly 40% in the future, and a compound annual growth rate of 23% over the next three to five years.

Although Pinduoduo only received a D+ rating in terms of valuation, its expected price-earnings growth ratio is 0.70, which is 54% lower than the industry median, showing high value.

Based on a combination of stock size and other factors, SA Quant ratings also focus on the risk of stocks. Pinduoduo's 60-month beta value is 0.68, and the 24-month beta value is 0.44. These data show that Pinduoduo's stock price fluctuates far less than the overall market. In the past five years, Pinduoduo's 60-month beta value peaked at 0.78, and the average value remained at 0.72.

According to S&P Global Market Intelligence analysis, more than 28.5 million shares of Pinduoduo have been shorted, accounting for about 2% of its total issued shares of 1.39 billion, which is far below the industry average of 5.43%. Pinduoduo's balance sheet is very solid, with total cash reaching US$30 billion, while total debt is only US$1.43 billion.

Its debt to equity ratio is 5%, long-term debt to total capital is close to 4%, and its operating income covers debt payments as high as 1,334. Furthermore, the Altman Z score based on profitability, leverage, and liquidity is 5.24, indicating that Pinduoduo is financially healthy and the risk of bankruptcy is extremely low.

Investors holding American Depositary Shares (ADS) face a risk that if Pinduoduo fails to meet the requirements of the US Securities and Exchange (SEC), including the ability to check its auditors in China, they may be delisted by US regulators.

According to Pinduoduo's annual report, Pinduoduo operates through a variable interest entity (VIE) structure related to its business in China. Pinduoduo does not directly own these VIEs and their subsidiaries, but rather manages them through contractual arrangements that may be restricted or prohibited by China, which may have a negative impact on Pinduoduo's financial health.

In 2023, VIE and its subsidiaries contributed 45.7% of Pinduoduo's total revenue. In addition, Pinduoduo's global operations also face risks such as currency exchange rate fluctuations, compliance with local laws, technical failure, and supply chain disruptions that may be caused by natural disasters and geopolitical conflicts.

Pinduoduo has shown strong growth momentum and profitability over the past year, and judging from key quantitative forward-looking indicators and market consensus, he still has significant profit potential. Stock prices have risen more than 120% over the past year, revenue has increased nearly 90% year over year, and EBIT and EPS have increased 93% and 87%, respectively. At the same time, its free cash flow, net income, and operating margin far exceeded the industry average.

The SA Quant team gave Pinduoduo a “Strong Buy” rating for quantitative factors such as growth, profitability, momentum, and EPS adjustment, and the forward-looking PEG ratio was 0.70. Users who want to enter the market are recommended to use BiyaPay, a multi-asset trading wallet — one you can invest inUS Stocks/Hong Kong StocksIt also supports tradingcryptocurrencyA multi-asset trading tool, search for its stock code PDD to monitor market trends (as shown in the figure below), and select the right time to get on the bus. You can also deposit digital currencies, such as USDT, to BiyaPay, and then withdraw fiat money to other securities to invest in US stocks.

Article Source: Seeking Alpha

Editor: BiyaPay Finance