7. PDD Holdings Inc. (NASDAQ:PDD)
Forward P/E Ratio: 8.57
Earnings Growth This Year: 75.35%
Number of Hedge Fund Holders: 78
PDD Holdings Inc. (NASDAQ:PDD) is an international e-commerce group that owns renowned platforms including Pinduoduo and Temu. Founded in 2015 by Colin Huang, the company has quickly grown to challenge established players in the industry.
It has become one of the major e-commerce players in China, leveraging a team purchase model that reduces costs by partnering directly with manufacturers. Moreover, it also targets small and medium-scale merchants to ensure its listings are cheaper than its competitors. This strategy has attracted consumers seeking affordable products. While Temu is widely used in China and across Europe, according to Ernest Analytics, it has gained 17% of the online discount store market in the United States, as of November 2023.
As a result of these strategies, PDD Holdings Inc. (NASDAQ:PDD) has been posting significant revenue gains. During the fiscal third quarter of 2024, the company grew its top-line by 44%, year-over-year. Despite competitive pressures, the company is focused on building a sustainable ecosystem through merchant support and safety updates. It is one of the best affordable stocks to buy right now.
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.”
