Shares of Chinese low-cost e-commerce giant PDD plunged on Monday, but some analysts say the stock is still a buy. The Nasdaq-listed shares fell nearly 29% and continued to slide on Tuesday. PDD, which owns discount platforms Pinduoduo in China and Temu for the international market, had reported second-quarter earnings that fell short of expectations. Revenue of 97.06 billion yuan ($13.6 billion) rose 86% from the same period last year. That was below analysts’ average estimates of around 100 billion yuan, according to LSEG. Ben Harburg, founder and portfolio manager at CoreValues Alpha, pointed out that “one stumbling block” in their recent earnings numbers is that PDD has subsidized its global business through its strong performance in China, where it has been a dominant e-commerce player. “So they were able to subsidize this massive growth of Temu as it expanded into Western markets and higher margin markets with this Chinese stronghold, but now Chinese consumer goods companies are under threat,” he told CNBC’s “Squawk Box Asia” on Tuesday. Harburg said the problem is that PDD faces a saturated market — with competition from JD, Alibaba, Shein and Amazon — and slower consumption growth in China. Despite these challenges, PDD is a long-term buy, he said, calling the stock’s plunge an “overreaction” by the markets. “We think this business is incredibly strong long-term. It’s not only doing well in China, but it’s obviously dominating … emerging and mature markets,” he said, adding that shares would “climb back up” in the coming months. He believes consumption in the country will improve as property prices stabilize — China is struggling with a housing crisis. In an Aug. 27 note, HSBC also maintained its buy rating on PDD but cut its price target on the stock to $189 from $208. The company said it remains confident in PDD’s overseas growth and earnings “can be resilient,” despite near-term headwinds. “More cautious comments from PDD, weaker-than-expected domestic results and a lack of commitment to shareholder returns are likely to weigh on the share price, especially in the near term. However, we think the valuation remains attractive at (9x FY2024 price-to-earnings),” said HSBC analysts Charlene Liu and Charlotte Wei. It said Temu still leads overseas markets in terms of user growth and diversification. Morningstar reduced its fair value estimate on the stock by 26% to $171. Chelsey Tam, senior equity analyst at Morningstar, noted that PDD has said a long-term decline in profitability is “inevitable” and that margins will fluctuate in the short term. However, Tam believes PDD shares are “still cheap” compared to the earnings growth of the Temu business. In total, 32 of the analysts covering the stock have cut price targets over the past seven days. The consensus price target is now $172.29, which still offers about 79% upside potential.
Is the share price crash of Chinese e-commerce giant PDD a buying opportunity?
