With a daily gain of 4.88%, a three-month gain of 46.98%, and Earnings Per Share (EPS) (EPS) of 4.05, PDD Holdings Inc (PDD, Financial) is making waves in the financial market. But the question remains: is the stock modestly undervalued? In this article, we delve into a comprehensive valuation analysis of PDD Holdings, providing you with insights to make informed investment decisions.
A Snapshot of PDD Holdings Inc
PDD Holdings (PDD, Financial), listed on Nasdaq, is a multinational commerce group that owns and operates a portfolio of businesses. The company is dedicated to bringing more businesses and people into the digital economy, with a focus on benefiting local communities and small businesses. PDD Holdings has built a robust network of sourcing, logistics, and fulfilment capabilities to support its underlying businesses.
At a stock price of $103.16 and a GF Value of $121.3, PDD Holdings appears to be modestly undervalued. This discrepancy between the stock price and the fair value presents an opportunity for a deeper exploration into the company's intrinsic value.
Understanding the GF Value of PDD Holdings
The GF Value is a unique tool that estimates the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
The stock of PDD Holdings shows every sign of being modestly undervalued according to GuruFocus' valuation method. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment factor based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $103.16 per share, PDD Holdings stock appears to be modestly undervalued.
Because PDD Holdings is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength of PDD Holdings
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. PDD Holdings has a cash-to-debt ratio of 9.83, which ranks better than 87.52% of 1098 companies in the Retail - Cyclical industry. The overall financial strength of PDD Holdings is 9 out of 10, indicating strong financial health.
Profitability and Growth of PDD Holdings
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. PDD Holdings has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $23.50 billion and Earnings Per Share (EPS) of $4.05. Its operating margin is 23.69%, which ranks better than 96.4% of 1111 companies in the Retail - Cyclical industry. Overall, the profitability of PDD Holdings is ranked 4 out of 10, indicating poor profitability.
Growth is a critical factor in the valuation of a company. PDD Holdings's 3-year average revenue growth rate is better than 95.7% of 1046 companies in the Retail - Cyclical industry. However, PDD Holdings's 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 893 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, PDD Holdings's ROIC is 68.44 while its WACC came in at 4.86.
Conclusion
In summary, the stock of PDD Holdings shows every sign of being modestly undervalued. The company's financial condition is strong, but its profitability is poor. Its growth ranks worse than 0% of 893 companies in the Retail - Cyclical industry. To learn more about PDD Holdings stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
