Relative valuation of PDD Holdings Inc.

Abstract

This thematic paper explores the relative valuation of Pinduoduo (PDD), a Chinese e-commerce company that has disrupted the market with its innovative group buying model and cost-effective product strategy. E-commerce is a very competitive industry, and the fact that PDD is able to surge in a short amount of time with its impressive performance makes it an interesting investment choice for investors. Using a relative valuation approach, we can discover PDD's target price for investors to consider. The paper analyses PDD's financial performance through various metrics, including revenue, earnings per share, profitability, and liquidity ratios, comparing its performance with its industry, namely Amazon, Alibaba, and JD.com. It examines PDD's valuation through historical multiple bands and a peer group comparison approach, focusing on trailing and forward P/E, P/BV, EV/EBITDA, and P/S multiples. With 3-year historical multiple bands and peer multiples, PDD is slightly overvalued with a 5.68% downside as of June 28, 2024. However, the expected price at the end of 2024 and 2025 is $188.50 and $245.47, representing a 41.78% and 84.64% upside from the current price of $132.95. Thus, PDD is recommended as a buy under relative valuation. Nonetheless, it is important to note that despite its consistently strong financial performance, PDD is operating in a highly competitive environment, and its rapid growth may result in volatile prices over a short timeframe.