Ago, Pinduoduo parent PDD sees near all-time low amid tech war, Alibaba rivalry scares away investors

Shares of the parent company Temu PDD holdings are hampered by geopolitical risks and fierce competition in China’s e-commerce sector.

It’s true that the U.S.-listed company’s shares are up 43 percent from their March lows, but they’re still trading at just 13 times next year’s expected earnings. This is half the valuation of the Nasdaq 100, marking the largest PDD decline in history.

This may seem like a great opportunity for a company that more than doubled its sales in the last quarter, with a growth rate second only to Nvidia in the tech-focused index.

Some see the difference as justified given the harsh rhetoric from Beijing and both candidates regarding the trade war in the upcoming U.S. presidential poll.

“People are concerned about election risks and potential tariffs on PDD, leading many to assign zero or even negative value to it,” said Shuyan Feng, deputy general manager of investment management at Huatai Asset Management (Hong Kong).

PDD’s profits more than tripled in the quarter ended in March as the company managed to bring its budget e-commerce model to overseas markets. High growth Temu aroused interest in key Western markets, including: European complaints that China’s online marketplace does not protect consumers.

The problems run deeper in the US, where lawmakers accuse Temu and rival Shein of exploiting legal loopholes to the detriment of American competitors. The latest statement from the US government order ByteDance to divest TikTok put further pressure on other Chinese internet companies.

Another source of worry is intense competition in China. After years of giving up market share, PDD’s biggest rival Alibaba Group Holding recorded a double-digit increase in the value of gross goods in the last quarter. Sales growth also accelerated at JD.comwhich lowered prices and increased benefits to attract customers.

That’s not to say investors have been shying away from PDD – its 43% gain since March is 10 times the gain of the Nasdaq 100 index. However, this performance has been well outpaced by a nearly 60% increase in forward earnings estimates over the same period.

On Friday, Goldman Sachs updated its PDD and began buying from Neutral, citing the company’s strong revenue growth and ad tech opportunities. According to analyst Ronald Keung, the main negative factors, such as strong internal competition and tensions with the US, are “more than priced in”.

“China, e-commerce is emerging as one of the more undervalued sub-sectors of China’s Internet,” Keung wrote in the note. “We note that investor appetite to value Temu’s full business potential still appears limited given geopolitical uncertainty.”

Another reason for the reduction in PDD valuation may be the lack of initiatives in the field of return to shareholders, while e.g Alibaba AND Tencent Holding buy back billions of dollars worth of stock.

With the exception of PDD, all 15 largest members of the listed Kraneshares CSI China Internet Fund have a share buyback program or a regular dividend policy.

Another thing that may be holding PDD back is unclear information for investors. PDD does not report revenue by region, and business segment analysis can be difficult.

“The main obstacle holding back PDD valuation is the lack of disclosure,” said Xin-Yao Ng, chief investment officer at Abrdn. “It is very difficult to value domestic PDD and Temu separately, and that is important because there is definitely a large geopolitical discount to their shares because of Temu.”