2. PDD Holdings Inc. (NASDAQ:PDD)
Forward Price to Earnings Ratio: 9.94
Earnings Growth: 81.70%
Number of Hedge Fund Holders: 86
PDD Holdings Inc. (NASDAQ:PDD) ranks 3rd on our list of cheap NASDAQ stocks to invest in now. It is trading at a 45% discount to its sector and its earnings are expected to grow by around 82% during the year. The company operates as an e-commerce company owning renowned retail marketplaces such as Pinduoduo and Temu. It has developed a robust e-commerce business model with logistics and a vast seller network in only 10 years since its inception.
As the company competes with established players in the market, it has found its competitive edge in targeting small and medium businesses. This allows its marketplace platform listings to be cheaper than its competitors thereby attracting more customers. During the second quarter of fiscal 2024, PDD Holdings Inc. (NASDAQ:PDD) reached 167 million monthly active customers with more than 50 million customers from the United States.
Moreover, it also improved its top line by a staggering 86% year-over-year to $13.74 billion. Not only this, its operating profits were also up by 156% during the same time to reach $4.48 billion. Robust top and bottom line growth topped with a cheap valuation makes PDD Holdings Inc. (NASDAQ:PDD) an attractive investment opportunity.
Baron Global Advantage Fund stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its Q3 2024 investor letter:
“During the third quarter we re-initiated a small investment in PDD Holdings Inc. (NASDAQ:PDD). We believe the company is truly unique in the global e-commerce landscape, with an innovative business model, and very strong growth prospects. Founded in 2015 as Pinduoduo, the company has grown into China’s second-largest e-commerce player, capturing over 20% market share. PDD’s Consumer-to-Manufacturer (C2M) model, which connects manufacturers directly to consumers eliminated intermediaries, allowing for ultra-low prices that attract price-sensitive consumers and small merchants. Its discovery-based, algorithm-driven shopping experience has created a highly engaging platform, driving user and merchant growth in a virtuous cycle. We expect PDD to continue gaining share in China given its dominance in the value-for-money segment, growing branded product offerings at affordable prices, and high operational efficiency. PDD’s network effects and cost advantage, supported by its lean structure and efficient C2M model, are set to grow as it scales, both domestically and internationally. Its cross-border e-commerce platform, Temu, launched in September 2022, has rapidly become one of the world’s fastest-growing apps. Leveraging China’s excess capacity and PDD’s supply-chain efficiency, Temu wields strong pricing power over Chinese suppliers and attracts overseas consumers with competitively priced products. While still in early stage, Temu has achieved 2% of the global ex-China e-commerce market and a variable breakeven in the U.S. market, underscoring PDD’s focus on sustainable growth. Despite its rapid growth and profitability, PDD trades at a double-digit free cash flow yield (despite losses from the early-stage international expansion through Temu), significantly below sector peers. While concerns over geopolitical tensions exist, we believe PDD’s growing competitive edge, strong cash flow, and disciplined management position it to create substantial long-term value for shareholders.”
