16 Most Undervalued Stocks to Buy Now

3) PDD Holdings Inc. (NASDAQ:PDD)

Forward P/E ratio as on 22^nd August: 12.48x

Expected EPS Growth this Year: 86.1%

Number of Hedge Fund Holders: 86

PDD Holdings Inc. (NASDAQ:PDD) is a multinational e-commerce group that owns and operates a portfolio of businesses. It continues to focus on the digital economy so that local communities and small businesses can reap the benefits of increased productivity and new opportunities.

The company used the higher penetration of smartphones and innovative business models to reach millions of customers in China.

However, the analysts and investing communities are not supporting Chinese companies due to the general slowdown in the broader economy. On the positive side, this means that most of the Chinese companies continue to trade at attractive valuations. For example, PDD Holdings Inc. (NASDAQ: PDD)’s stock trades at ~12.4x its forward earnings, which is at a deep discount to the sectoral average of ~18.8x.

The company uses the group-buy business model. This allows the users to invite family and friends for bulk purchases of the products directly from the concerned manufacturers. Therefore, the manufacturers can receive bulk orders, and customers tend to benefit from rock-bottom prices. This strategy of the company provides a significant competitive advantage which should help it in witnessing earnings growth moving forward.

As per Insider Monkey’s 2Q 2024 database, PDD Holdings Inc. (NASDAQ:PDD) was in the portfolios of 86 hedge funds.

Baron Funds, an investment management company, released its fourth quarter 2023 investor letter. Here is what the fund said:

“We added to our digitization theme by building a position in PDD Holdings Inc. (NASDAQ:PDD), a leading Chinese e-commerce platform. Founded in 2015, the company has emerged as China’s second largest e-commerce player, capturing approximately 20% market share. In our view, PDD’s competitive moat lies in its team purchase model that facilitates bulk buying through direct partnerships with manufacturers, thereby eliminating intermediaries (e.g., distributors and middlemen) and lowering costs. Key factors driving the company’s meteoric growth include rising consumer demand for affordable products in China amid an economic slowdown, small-scale merchants seeking alternatives to Alibaba, and superior management execution. PDD’s revenue growth outpaces gross merchandize value growth owing to rising take rates as merchants aggressively compete for consumer traffic on the platform. In our view, PDD should continue to gain market share given its dominance in the value-for-money segment, growing affordable branded product offerings, and high operational efficiency. We believe the company’s growth will be further supported by the recent launch of its international e-commerce platform, Temu, which has become one of the fastest growing apps globally. Leveraging China’s excess manufacturing capacity, Temu has strong negotiating power with domestic suppliers and attracts global consumers with competitively priced products. Temu’s recent initiatives to improve unit economics, coupled with achieving variable breakeven in the sizable U.S. market, showcase management’s skill and commitment to sustained growth. We expect PDD to at least double its earnings and free cash flow in the next three years, with the potential for continued compounding thereafter.”