PDD Holdings (NASDAQ:PDD) is the global tech company behind Pinduoduo in China and Temu internationally and its share price is down 36% since 2021. And at just 11.7 times forward earnings, PDD stock is priced like some FTSE 100 value play.
Let’s take a look at why this Chinese stock is so cheap.
Temu’s mind-boggling ascent
PDD’s shopping platforms connect buyers directly to Chinese manufacturers in what is sometimes called a ‘factory-to-consumer’ model. This cuts out various middlemen, allowing the company to offer products at rock-bottom prices.
Shopping on Temu’s app is done through a gamified experience. Having used it in the past, I would say the garish pop-up boxes and prize wheels are not for everyone. I spend as much time pressing the close buttons as I do actually shopping!
But it seems to resonate with plenty of other folk, as Temu has absolutely exploded in popularity since launch in 2022. Indeed, according to Statista, it was the most downloaded shopping app worldwide in 2024.
PDD doesn’t break out Temu’s financial numbers, and I suspect that’s because this unit is still unprofitable and subsidised by the more established Chinese operation. But PDD’s overall revenue surged nearly 90% in 2023 and 59% last year. Group profits have also exploded higher over this time.
A double whammy
Until recently, Temu benefited hugely from duty-free imports of small packages in the West. However, President Trump has closed this loophole, as well as slapping huge tariffs on many imported Chinese goods.
In response, Temu has started shipping to US customers from domestic warehouses. This has pushed up prices, hit profits, and stunted international expansion. Fewer people are downloading and/or using the app in the US as it has scaled back marketing spend.
In Q2, PDD reported total revenue growth of 7% ($14.5bn), but operating profit fell 21%.
Slowing sales growth
Below, we can see the company’s rapidly decelerating revenue growth.
| Quarter | Revenue growth |
|---|---|
| Q1 2024 | +131% |
| Q2 2024 | +86% |
| Q3 2024 | +44% |
| Q4 2024 | +24% |
| Q1 2025 | +10% |
| Q2 2025 | +7% |
The company is also facing intense competition, both domestic and international. In China, it’s lowering merchant fees to stay competitive. It’s also investing heavily to improve access to remote parts of the vast country. This is expected to weigh on near-term profitability.
Over time, however, these moves should pay off. And by 2028, revenue is tipped to exceed $100bn, up from $54bn in 2024. So PDD is still growing, just not as fast as before.
Very cheap valuation
While Trump’s latest threat to slap an additional 100% tariff on Chinese imports adds risk, I believe much of the bad news is already priced in. Based on current forecasts, the forward P/E multiple drops below 9 by 2027.
That’s incredibly cheap for an innovative tech company that serves around 1bn users globally. With that many customers, PDD is surely sitting on a goldmine of behavioural data to power its AI algorithms. This should give it a powerful edge in targeted advertising.
Finally, it’s worth noting that Li Lu — often called the ‘Chinese Warren Buffett‘ — bought PDD shares in Q2 for his hedge fund (Himalaya Capital Management). He very rarely buys a new stock.
Weighing things up, I reckon this dirt-cheap share is worth a look, despite slowing growth and global trade risks. It might be extremely mispriced.
