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Shares of PDD companies (NASDAQ:PDD) fell today after the Chinese e-commerce company and owner of Pinduoduo and Temu posted disappointing second-quarter revenue growth and provided a gloomy commentary on the quarters ahead.
Shares fell 28% as of 11:12 a.m. ET on the news.
PDD hits a wall
PDD bucked the Chinese e-commerce trend and continued to post phenomenal growth, while industry peers liked it too Alibaba.com And JD.com have struggled. However, that now seems to be changing.
Second-quarter numbers were still impressive, as revenue rose 86% to $13.4 billion in the period, but that was below the analyst consensus of $14.04 billion.
Margins also continued to grow, while adjusted operating profit rose 139% to $4.48 billion. PDD improved its gross margin and gained more influence over expenses such as sales and marketing and research and development.
On the bottom line, the company posted adjusted earnings per share of $3.20, up from $1.45 in the year-ago quarter and better than the $2.73 consensus.
However, investors seemed more concerned about weaker-than-expected revenue growth and cautious comments from management, as co-CEO Lei Cehn said: “While encouraged by the solid progress we have made in recent quarters, we see many challenges in the ahead,” implying more intense competition. He added: “We are willing to accept short-term sacrifices and a possible decline in profitability.”
What is the future for PDD?
PDD did not provide specific guidance for the current quarter or the rest of the year, as Chinese companies typically do not provide guidance. However, comments on the earnings figures indicate that greater competitive pressure is expected, which will weigh on sales growth.
The good news is that PDD stock looks cheap at a price-earnings ratio from less than 10 now, a shockingly low valuation for a company that is still growing very quickly, reflecting investor caution towards China.
Today’s sell-off could prove to be a buying opportunity, but investors may want to tread carefully on the stock given broader challenges in China and management’s indications that earnings could soon decline.
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Jeremy Bowman has positions in JD.com. The Motley Fool holds positions in and recommends JD.com. The Motley Fool recommends Alibaba Group. The Motley Fool has one disclosure policy.
Why PDD Holdings Shares Plummeted Today was originally published by The Motley Fool