The stock of PDD Holdings Inc PDD, the parent company of Temu, is currently trading at its lowest level ever. This is despite the company’s robust growth and performance in the e-commerce sector.
What Happened: PDD’s stock is currently at 13 times the expected earnings for the next year, which is only half the valuation of the Nasdaq 100. This is despite the company’s impressive 43% surge from its March low, reported Bloomberg.
The company’s success in pushing its budget e-commerce model into overseas markets has led to more than tripled earnings in the March-ended quarter.
"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 in Hong Kong.
However, this growth has also attracted scrutiny in key Western markets, with European complaints about the company’s failure to protect consumers. In the U.S., lawmakers have accused Temu and rival Shein of exploiting loopholes to the disadvantage of U.S. competitors.
Despite the growth, the stock is being held back by geopolitical risks and fierce competition in China’s e-commerce sector. The U.S. government’s recent order for ByteDance Ltd. to divest TikTok has further increased pressure on Chinese internet firms, including PDD.
"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."
Why It Matters: Goldman Sachs Group recently upgraded PDD to buy from neutral, citing the company’s strong revenue growth and ad tech capabilities. The main negative factors of tough domestic competition and tensions with the U.S. are “more than priced in,” according to analyst Ronald Keung.
The geopolitical tensions impacting PDD Holdings Inc. come amid a broader context of its peers’ competitive pressures and strategic moves. Recently, Alibaba Group Holding Ltd. BABA announced it had signed David Beckham as a global brand ambassador, aiming to bolster its e-commerce platform’s global appeal.
Price Action: PDD ADR last traded at $157.57, up 2.56% from Friday’s close, and has risen 8.19% year-to-date, as per the data from Benzinga Pro.
Image Via Shutterstock
This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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