After soaring in 2023, share prices of PDD Holdings(NASDAQ: PDD) are down 20% so far this year. However, the company, which operates Pinduoduo and Temu, has been gaining market share against other e-commerce platforms in China. This presents a buying opportunity for investors, according to analysts at Jefferies.
The firm recently upgraded the stock to buy with a price target of $157, representing a 33% upside from the current share price of $118.
Why Wall Street is bullish on PDD
PDD hasn't reported fourth-quarter results yet, but in the third quarter of 2023, revenue grew 94% year over year. The e-commerce holding company is winning over customers with its focus on value. PDD believes its Temu cross-border service is still in the early stages of expanding its customer reach overseas.
The stock has slid year to date over concerns about the broader economy, especially in China. But Jefferies believes the company's competitive advantage allowing consumers to buy directly from manufacturers will prevail in a challenging operating environment. PDD's supply chain is helping brands emerge as leaders in their category, which is an attractive proposition in an uncertain business climate.
Is PDD stock a buy?
Given the company's recent growth, the stock's forward price-to-earnings ratio of 16 looks tempting, especially with the Wall Street consensus estimate calling for the company's earnings to grow at an annualized rate of 23%. For 2023's fourth quarter, analysts expect revenue to almost double year over year.
Investors are skeptical about how long this growth will last, which is why the stock trades at such a low forward P/E, but PDD's relationship with suppliers and low prices it brings consumers is a threat to larger e-commerce platforms in China. If PDD continues to execute, the stock could offer significant upside.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Jefferies Financial Group. The Motley Fool has a disclosure policy.
