We recently published a list of Top 10 Stocks to Buy According to SRS Investment Management. In this article, we are going to take a look at where PDD Holdings Inc. (NASDAQ:PDD) stands against other top stocks to buy according to SRS Investment Management.
SRS Investment Management is a New York-based investment firm founded in 2006 by Karthik Sarma. The firm focuses on diverse investments across industries, including technology, media, telecommunications, consumer goods, and industrial sectors. It employs a research-driven approach to identify promising opportunities in global markets, leveraging its expertise to navigate complex financial landscapes.
As an investment advisory firm, SRS provides detailed insights into its business practices through its regulatory disclosures, although these are not verified by the SEC or state securities authorities. The firm emphasizes thorough due diligence when evaluating potential investments, gathering information on a company’s products, services, and market position. Its analytical approach includes engaging with industry experts, assessing supply and demand dynamics, and constructing financial models to project future performance and returns.
SRS primarily follows a global long/short equity strategy, aiming for high risk-adjusted returns while prioritizing capital preservation. The firm diversifies its investments across multiple industries and regions to mitigate risks. Its investment process involves extensive fundamental research, disciplined portfolio management, and strategic positioning in both long and short positions. This approach enables SRS to capitalize on market inefficiencies and generate sustainable returns.
Additionally, the firm runs a Focused Investment Program, targeting undervalued securities and acquiring significant positions at favorable prices. This strategy relies on active shareholder engagement, where SRS seeks positive responses from company management and stakeholders to influence corporate actions. The effectiveness of this strategy depends on how the market reacts to these initiatives and the willingness of companies to adopt changes proposed by shareholders. Through its meticulous investment approach, SRS aims to drive long-term value creation for its investors.
Karthik Sarma is an Indian billionaire hedge fund manager and the founder of SRS Investment Management, which he launched in 2006 after five years at Tiger Global Management. With a strong background in finance and investment, Sarma has also served as a director on Avis’s board since 2020, playing a key role in its strategic decisions. His educational background includes a bachelor’s degree from the Indian Institute of Technology Madras and a master’s degree from Princeton University. His professional journey began with three years at McKinsey & Co. as a consultant, where he gained experience in business strategy and financial analysis. He later joined Tiger Global Management, where he worked as a Managing Director from 2001 to 2005, honing his expertise in hedge fund management before establishing SRS Investment Management. Sarma’s ability to identify and capitalize on investment opportunities has positioned him as a highly influential figure in the hedge fund industry.
As an immigrant who moved to the United States for graduate studies, Sarma has built a reputation as a strategic investor with a disciplined approach to fund management. His experience across consulting, investment management, and corporate governance has contributed to his firm’s success. Through SRS, he continues to influence the financial landscape, focusing on long-term value creation for investors while maintaining a strong presence in key industries.
As of its latest filing for the fourth quarter of 2024, SRS Investment Management reported overseeing approximately $7 billion in 13F securities. The firm’s investment approach remains highly concentrated, with its top ten holdings accounting for 92.05% of total assets. This level of concentration suggests a high-conviction strategy, where SRS invests heavily in a select group of companies it believes offer strong long-term growth potential.
Our Methodology
The stocks discussed below were picked from SRS Investment Management’s Q4 2024 13F filings. They are compiled in the ascending order of the hedge fund’s stake in them as of December 31, 2024. To assist readers with more context, we have included the hedge fund sentiment regarding each stock using data from 1,009 hedge funds tracked by Insider Monkey in the fourth quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A close-up of a customer using the company’s e-commerce platform whilst shopping online.
PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders as of Q4: 85
SRS Investment Management’s Equity Stake: $394.20 Million
PDD Holdings Inc. (NASDAQ:PDD), a parent company of Pinduoduo and Temu, reported a strong financial performance for the fourth quarter of 2024, though results were mixed compared to market expectations. The company posted earnings per share (EPS) of 20.15 RMB, exceeding the forecasted 19.84 RMB, but revenue fell short at 110.6 billion RMB, missing the expected 115.15 billion RMB. Despite this, it remains committed to long-term growth over short-term financial targets, with a strategic focus on enhancing its merchant ecosystem, expanding logistics support in remote areas, and improving product quality. Following the earnings release, the stock declined by 3.44% in premarket trading, reflecting investor concerns over the revenue miss.
For the full year 2024, PDD Holdings Inc. (NASDAQ:PDD) reported a remarkable 59% year-over-year increase in revenue, reaching 393.8 billion RMB. The company’s strong fundamentals were highlighted by an industry-leading gross profit margin of 62.06% and significant cash reserves of 331.6 billion RMB as of December 31, 2024. In the fourth quarter alone, revenue grew by 24% year-over-year, supported by an operating profit of 28 billion RMB, maintaining a solid 24% margin. With a full-year net income of 122.3 billion RMB, PDD remains well-positioned to navigate the evolving e-commerce landscape while continuing to invest in its platform and expansion initiatives.
PDD Holdings Inc. (NASDAQ:PDD)’s focus extends beyond financial performance as it prioritizes ecosystem development and merchant support. Moving forward, the company is expected to leverage its vast resources to enhance logistical efficiency, optimize merchant engagement, and expand internationally. With a solid financial foundation and a clear strategic direction, PDD Holdings remains a formidable player in the global e-commerce industry. As SRS Investment Management holds a stake of over $394 million in the company, it is sixth on the list of top stocks to buy according to the hedge fund.
GreenWood Investors stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its Q4 2024 investor letter:
“Aside from transitory foreign exchange translation losses (as opposed to trading losses), the two other notable detractors from our portfolio were MEI Pharma and PDD Holdings Inc. (NASDAQ:PDD) in 2024.
PDD Holdings founder Colin Huang is who inspired us to “run 3x faster,” as the relentless corporate culture of PDD has built an e-commerce company with roughly the same GMV (gross merchandise value) of Amazon in one-third the time it took Amazon to build itself. Shares reacted negatively when the company decided to reinvest its record margins into even faster growth and creating a healthier supplier ecosystem. As it looks set to create a second Amazon with its international site Temu, we are highly attracted to the opportunity. Sales are growing 4x faster than Amazon’s, yet shares are priced at less than a quarter of the Amazon earnings multiple.
PDD is a perfect example of why we want to look outside of the “Big Ten” companies that are nearly a third of global market indices. We would not want to compete with the demanding corporate culture of PDD and Temu. Its operating model is relentless at identifying efficiency throughout the manufacturing and selling supply chain. Not only is it a mor formidable competitor than Amazon, and growing much faster, but the valuation is 4x more attractive than Amazon’s…” (Click here to read the full text)
Overall, PDD ranks 6th on our list of top stocks to buy according to SRS Investment Management. While we acknowledge the potential for PDD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PDD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
