According to financial media, though, there are loads of them. There’s the Warren Buffett of Britain (Terry Smith), the Warren Buffett of India (the late Rakesh Jhunjhunwala), and China’s Warren Buffett (Li Lu). The list goes on.  

If there’s one value investor who truly earns the comparison, it’s probably the last of these, Li Lu. Not just due to his amazing investing record, but because of his direct association with Warren Buffett’s long-time business partner, the late Charlie Munger. 

He was an early backer of Li’s hedge fund, Himalaya Capital Management. In fact, in a 2019 interview, Munger said: “I’m 95 years old. I’ve given Munger money to some outsider to run once in 95 years. That’s Li Lu.”

High trust indeed! 

Incredible track record

Over the past 20 years, China has proved to be a very lucrative hunting ground for Li. He invested aggressively in two big ideas he had. One was a battery and electric vehicle start-up called BYD, which is now the world’s largest EV firm by revenue.

Thanks to Li, BYD also turned out to be a fabulous investment for Berkshire.

The other was Kweichow Moutai, which is the company behind the premium Chinese liquor baijiu (a fiery white spirit with a sweet aftertaste). Today, it’s the world’s largest spirits company by market cap (around $250bn).

On reflection, Kweichow Moutai appears to be a classic Buffett-esque buy. It has a unique brand, large moat, loyal customers, and pricing strong power. A gross margin of 90%+ – and net profit margin above 50% – indicates the firm is also quite profitable! 

Li supposedly started picking up shares for around five times earnings two decades ago. In a Financial Times article, Munger said: “He just backed up the truck, bought all he could, and made a killing.”

New idea

Himalaya Capital runs an incredibly concentrated portfolio, usually holding fewer than 10 stocks. But in Q2, Li loaded up on shares of PDD Holdings (NASDAQ:PDD). This is the e-commerce firm behind Pinduoduo in China and Temu everywhere else.

What’s noticeable is that he immediately made this the fund’s third-largest holding, with a near-18% weighting, worth just under $500m. Only Alphabet and Bank of America were larger positions in Q2. 

Why might he be so bullish? Well, PDD has hundreds of millions of customers in China, where it operates the most extensive online marketplace for agricultural products. Agriculture, which is still a massive industry in China, is one of the last to go online.

Our purpose…[is] not about facilitating Shanghainese people to live like Parisians, but enabling people in provinces like Anhui to have kitchen towels and good food to eat.

PDD founder Colin Huang Zheng. 

The main risk with PDD is slowing growth due to tariffs and tax changes in the West. If President Trump slaps even higher tariffs on Chinese imports, then that will further hurt Temu’s growth.

However, it’s worth noting that Li is known for conducting extremely deep research to understand the DNA of a business. With PDD stock trading at less than 12 times forward earnings, it could be one for investors to also research further.

The post The ‘Warren Buffett of China’ has been piling into this cheap tech stock appeared first on The Motley Fool UK.

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.

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.

The post Down 36% and on a P/E of 11, this value stock looks dirt cheap appeared first on The Motley Fool UK.

The Temu owner grew its revenue and earnings by 59% and 78%, respectively, last year. Yet the stock has tumbled 17% in a week and now trades at a price-to-sales (P/S) ratio of 2.6 and a price-to-earnings (P/E) multiple of just 10.5.

At first glance, this looks unjustifiably cheap. So, should I add this value stock to my portfolio? Let’s find out.

Chinese stocks

Firstly, it’s worth pointing out why US-listed Chinese stocks trade at such a wide discount to American peers. It all boils down to regulatory risk, as China’s tech companies can quickly fall foul of regulators and have them breathing down their necks for all sorts of reasons.

For example, as well as its international Temu shopping platform, PDD operates Pinduoduo in China. It focuses on value-for-money merchandise and has a strong emphasis on agricultural products, directly connecting farmers with consumers. It has had great success taking market share from larger e-commerce rivals like Alibaba in recent years.

However, President Xi Jinping wants more “high-quality development” in the Chinese economy, with fewer counterfeit goods. In response to these concerns, Pinduoduo has initiated efforts to enhance product quality. Last year, PDD said it was “prepared to accept short-term sacrifices” to “vigorously support high-quality merchants“.

I read this as a clear signal that the firm’s profits were going to come down significantly. To be fair, management was honest about this, saying: “In the long run, the decline in our profitability is inevitable”.

Essentially, Chinese companies have to align themselves with what the government wants. And this often doesn’t involve the maximisation of shareholder profits, which puts off a lot of investors.

Hence why most Chinese stocks trade at cheap multiples. And geopolitical risk associated with US-China tensions only adds to the downwards pressure.

From billionaire to millionaire

But it’s not all domestic issues, including weak Chinese consumer spending, for PDD. Temu’s explosive growth has relied on shipping low-cost goods to US consumers directly from Chinese merchants.

However, President Trump has abolished the de minimis tax exemption that encouraged this, as well as slapping sky-high tariffs on Chinese imports. In Q1, PDD’s revenue grew just 10% to $13.2bn, a significant deceleration. Meanwhile, profits fell nearly 50% to $2bn!

The risk here is that Temu users face paying far higher costs, which could undermine the platform’s raison d’être (dirt cheap bargains). Instead of being able to “shop like a billionaire“, as Temu puts it, consumers might have to settle for shopping like a humble millionaire. Or not at all on the app.

Should I buy shares of PDD?

Given the significant challenges the company faces, I don’t think the earnings figures can be relied upon. In other words, the P/E ratio of 10 might be misleading if growth decelerates and margins take a hit.

If a US-China trade deal is struck, perhaps PDD’s strong international growth might resume. But given the murky outlook, I’m going to focus on other growth stocks for my portfolio.

The post Down 17% in a week and on a P/E of 10! Should I buy this dirt cheap value stock? appeared first on The Motley Fool UK.

Worth north of $20bn, he’s one of the world’s top investors, delivering impressive compound returns above 25% since the early 1990s. Investors with this type of track record are always worth paying attention to.

What’s he been buying?

Yesterday (10 February), we learned that Tepper doubled down on Chinese stocks in the fourth quarter. Indeed, at the end of December, China-linked stocks and exchange-traded funds (ETFs) made up 37% of his entire $6bn+ portfolio!

Specifically, he upped his stakes in e-commerce giants Alibaba, JD.com, and PDD Holdings (NASDAQ: PDD). Two of these are now among his top three positions, with Alibaba at the top (worth over $1bn and 15.5% of assets) and PDD the third-largest (8%).

Meanwhile, he increased his position in JD.com by 43% in the quarter.

Tepper believes Chinese companies offer fantastic value. He points out that many are cash-rich and trading near single-digit price-to-earnings (P/E) ratios despite still growing earnings at double digits.

Looking at this trio, we can see how cheap they are compared to Western e-commerce/tech stocks.

Uncertainty

Why are the valuations so low? Well, consumer spending in the world’s second-largest economy has been weak for some time, impacting growth at many Chinese e-commerce firms.

Additionally, US-China relations have worsened and are likely to deteriorate further. Tit-for-tat tariffs have started and this has increased uncertainty and soured sentiment for Chinese stocks.

However, Tepper has highlighted how China is actively encouraging higher shareholder returns. Its central bank is even providing financial support to companies for share buybacks!

A P/E of 9.8!

I think PDD looks the most attractive of the three. It’s the parent of Pinduoduo, the fast-growing online marketplace that serves hundreds of millions of Chinese consumers who live in rural provinces.

However, it’s not just reliant on its homeland, as it also owns cross-border e-commerce platform Temu. This has been one of the fastest-growing apps in the world recently, tempting people in with its unbeatable cheapness.

Temu’s tagline is “Shop like a billionaire”, and I can see what it means. In early December, I paid around £25 for multiple bags of doll clothes and accessories, which surprisingly turned out to be the highlight of my daughter’s Christmas. The app is now a toy staple for me!

Amazon has taken note of Temu’s rise and recently launched an ultra-discount rival called Haul. So PDD is certainly a disruptor, despite its low P/E of 9.8.

One big risk to Temu’s international growth is the potential for a crackdown on its duty-free imports, which currently bypass customs charges.

Looking ahead though, analysts still have solid double-digit growth pencilled in for both revenue and earnings in 2025 and 2026.

With MercadoLibre and Shopify among my top holdings, I currently have enough e-commerce exposure. But for investors willing to embrace the risks associated with Chinese stocks, it might be time to consider shopping with a billionaire like Tepper and buying cheap PDD shares.

The post Billionaire David Tepper has doubled down on these incredibly cheap shares appeared first on The Motley Fool UK.

Take PDD Holdings (NASDAQ: PDD) for example, which has just posted 144% profit growth. Yet the stock’s plunged 35% in a week, leaving it on a forward price-to-earnings (P/E) ratio of just 7.5.

Is this now an unmissable bargain? Here’s my take.

What is PDD Holdings?

For those unfamiliar, this is the parent company of Pinduoduo, the gamified shopping platform in China where users get discounts by purchasing in groups. Today, it’s China’s third-largest e-commerce company by sales, trailing only JD.com and Alibaba.

Temu, its overseas business, has spread like wildfire since it launched just two years ago. I popped on the app a few weeks ago, quickly becoming frustrated as its spinning wheel locked me in before dishing out a “free” product (if I spent a minimum of £15).

The products were dirt cheap, but they were of varying quality when they finally arrived. Let’s just say I won’t be cancelling my Amazon Prime subscription!

Why has PPD stock crashed?

In the second quarter, the e-commerce firm’s revenue surged 86% year on year to $13.4bn. Gross margin improved 1% to 65.3% while net income skyrocketed 144% to $4.4bn.

These incredible numbers were then followed by this bleak warning from management: “While encouraged by the solid progress we made in the past few quarters, we see many challenges ahead“.

It then laid out a load of them, ranging from rising competition to a transition away from “low-quality” merchants. However, one comment (from many) on the earnings call that probably spooked investors was this: “In the long run, the decline in our profitability is inevitable”. Yikes!

A possible mirage

The stock’s collapse has left it trading on a P/E ratio of just 10. That’s the sort of multiple you’d expect to see from a FTSE 100 bank, not a tech firm notching up 86% revenue growth.

The forward P/E ratio of 7.5’s actually lower than Alibaba, which is only growing in the single digits these days.

However, I’d take that figure with a pinch of salt because management’s already warned that falling earnings is “inevitable“. The ultra-low PDD valuation might well turn out to be a mirage.

I’m wary

Other things said by management highlighted why I don’t tend to invest in Chinese stocks. There was talk about being “committed to transitioning toward high-quality development” and “prepared to accept short-term sacrifices” to “vigorously support high-quality merchants“.

Committed and prepared for sacrifices? I read this as PDD very publicly aligning itself with Beijing’s authorities. That’s understandable given that President Xi Jinping has vowed to make “high-quality development” the guiding force of the Chinese economy. Woe betide those that don’t get onboard.

This emphasises again the tightrope that Chinese tech companies must walk. The shifting sands of the regulatory environment just creates too many complexities and risks that I don’t feel comfortable with.

At $93, PDD stock could prove to be an unmissable bargain. After all, the e-commerce firm’s still growing rapidly around the world. However, this is one opportunity I’m happy to let pass by.

The post Down 35% in days, is this value stock with a P/E of 7.5 an unmissable bargain? appeared first on The Motley Fool UK.

Enormous growth

PDD has demonstrated some impressive growth, with the shares skyrocketing nearly 450% over the past five years. What’s more, many analysts are projecting a 59% increase in the shares, and forecasting earnings growth of 22% per year.

To me, one of the most compelling aspects here is the valuation. Despite strong performance and growth prospects, the shares are still seemingly trading at a significant discount. According to a discounted cash flow (DCF) calculation, the shares are undervalued by a whopping 66%, compared to estimated fair value. Although this is far from a guarantee, it presents a potentially lucrative opportunity that investors with a higher tolerance for risk might want to explore.

Solid fundamentals

Solid financial health is another factor that potentially makes it an attractive investment. The company boasts a rock-solid balance sheet, crucial for weathering economic uncertainties and funding future growth initiatives. With a low debt-to-equity ratio of just 2.4%, the company has built some major financial flexibility, all while expanding its operations.

Flagship platforms Pinduoduo and Temu have been key drivers of growth. Pinduoduo has established itself as a major player in China’s e-commerce market, known for its innovative group-buying model and focus on value-conscious consumers. Temu, on the other hand, is the firm’s foray into the global market, rapidly gaining popularity in countries like the UK and US with a wide range of budget products.

What sets the business apart from competitors is its unique approach. As many will have seen, the company has leveraged social commerce trends, gamification, and advanced data analytics to create a highly engaging shopping experience. This strategy has not only attracted a massive user base but has also led to impressive customer retention rates.

A risky environment

However, the company operates in a highly competitive industry and faces regulatory challenges in both domestic and international markets. Additionally, there are concerns about potential US tariffs on companies with links to China. Such a move would clearly impact Temu’s operations. This risk is especially heightened in the run up to November’s US presidential election, where relations with China will likely be a key topic.

Despite these challenges, management has demonstrated it can navigate complex market conditions and capitalise on emerging opportunities to date. By focussing on technological innovation, and building a deep understanding of consumer behaviour, I feel that the firm is well positioned for continued success in the evolving e-commerce landscape.

One to watch

Looking to the future, I feel that PDD represents a compelling alternative to more widely discussed tech stocks like Tesla. With strong financial performance, an attractive valuation, and innovative business model, the business offers exposure to the booming e-commerce sector with significant potential.

So while Tesla stock continues to grab headlines, I’ll certainly be keeping a close eye on PDD. As the company expands its global footprint, it may well become the next big success story. I’ll be adding it to my watchlist for now.

The post Forget Tesla stock, I’m watching this growth giant instead appeared first on The Motley Fool UK.

The bull case

Looking at the investment case for PDD Holdings, I have to say it has me interested.

For a start, it has an insanely popular shopping platform in Temu. According to Apple, Temu has been the most downloaded app in the US this year. It has also been one of the most downloaded apps here in the UK.

One reason the e-commerce site’s doing so well is that it uses a range of ‘gamification’ strategies to keep users engaged. As a result, they tend to spend a lot of time on the platform and make more purchases.

Secondly, PDD’s revenues are surging. For Q3, they climbed a whopping 94% year on year to CNY69bn. That was miles ahead of analysts’ forecasts.

Third, the stock doesn’t look that expensive. At today’s share price, PDD has a forward-looking price-to-earnings (P/E) ratio of just 20. Given the level of growth, that’s a pretty low valuation.

Finally, some big-name investors have been piling into this stock. 13F regulatory filings show that in Q3, both David Tepper (of Appaloosa Management) and Brad Gerstner (of Altimeter Capital) bought PDD Holdings stock. These are some of the most clued-up investors in the world. In other words, some ‘smart money’ has been buying here.

The bear case

There are quite a few risks to consider with PDD shares though. Looking at reviews of Temu, it’s fair to say that a lot of shoppers aren’t actually that happy with the platform.

On Trustpilot, for example, 36% of reviewers give the site just one star (out of five). A lot of shoppers complain about the low quality of goods, long delivery times, and the poor customer service levels offered. Is this kind of business sustainable?

Another issue that needs to be highlighted is the possibility of controversial labour practices. Temu prices are insanely cheap (some products are 80% cheaper than on Amazon). And earlier this year, US lawmakers warned of an “extremely high risk” that products sold on the platform have been made with forced labour.

This issue can’t be ignored. Just look at what happened to Boohoo shares when the online fashion retailer came under pressure for poor labour practices (they’re down about 90% from their highs).

PDD Holdings has also received some attention from short sellers recently. For example, back in September, US research firm Grizzly Research posted a scathing report on the company.

“We believe PDD is a dying fraudulent company and its shopping app Temu is cleverly hidden spyware that poses an urgent security threat to US national interests”, it wrote.

Grizzly Research also said it believes PDD’s financials are “notoriously unreliable”.

My move now

Weighing this all up, I’m going to hold off on buying PDD Holdings shares for now. There’s a lot to like about the company. But there are also significant risks, to my mind.

So in the near term, I’m going to sit on the sidelines and focus on other growth stocks.

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