Why PDD Holdings Stock Is Falling

U.S.-listed Chinese stocks Alibaba Group Holding. , JD.com, Inc. , Baidu, Inc. , NIO Inc. , Li Auto Inc. , and XPeng Inc. continue a selloff on Tuesday as geopolitical tensions pose a dampener.

The Street remains disappointed with China’s fiscal stimulus. Donald Trump’s U.S. presidential election victory has also triggered concerns about higher tariffs for China.

Last week, China launched a fiscal stimulus package valued at 6 trillion yuan ($840 billion) to relieve local governments of their hidden debt burdens, lower than the Street’s expectations of 10 trillion yuan ($1.39 billion).

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Also, central authorities agreed to issue 800 billion yuan annually in special local government bonds, totaling 4 trillion yuan over the next five years.

The Street also factored in higher tariff risks as Trump, during his presidential campaign, promised to slap tariffs on Chinese imports by up to 60%.

Economic experts have voiced growing concerns about China’s economy following recent data releases and the anticipated impact of Trump’s presidency.

UBS revised its 2025 growth forecast for China downward, projecting an expansion of roughly 4%, with a steeper decline expected in 2026, Bloomberg reports.

Nomura Holdings’ Chetan Seth told Bloomberg that while China’s debt-swap plan exceeded initial expectations, the lack of measures to recapitalize banks or boost consumer spending will likely disappoint investors.

Foreign direct investment in China fell by nearly $13 billion in the year’s first nine months.

Price Actions: At the last check on Monday, BABA stock is down 4.05% at $91.56. JD is down 7.12%, BIDU is down 4.15%, NIO is down 9.20%.

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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

JD.com, Inc. JD is slated to report third-quarter 2024 results on Nov. 14.

For the third quarter, the Zacks Consensus Estimate for revenues is pegged at $36.54 billion, indicating growth of 7.64% from the year-ago quarter’s reported figure.

The consensus mark for earnings is pinned at $1.09 per share, suggesting 18.48% growth from the prior-year quarter’s reported number. The figure has been revised 5.8% upward over the past 30 days.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

JD.com has an impressive earnings surprise history. In the last reported quarter, the company delivered an earnings surprise of 50%. Its earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 24.04%.

JD.com, Inc. Price and EPS Surprise

JD.com, Inc. price-eps-surprise | JD.com, Inc. Quote

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for JD.com this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

JD has an Earnings ESP of 0.00% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Shaping Upcoming Results

JD.com's third-quarter results are anticipated to be driven primarily by robust performance in its core JD Retail segment, underpinned by diverse product offerings across electronics, home appliances and general merchandise.

The company's strategic expansion of third-party merchant relationships, particularly in premium international brands, is expected to have enhanced marketplace engagement. Notable among these partnerships is the collaboration with French luxury fashion group SMCP, whose brands SANDRO, MAJE, and CLAUDIE PIERLOT have established flagship stores on the platform, potentially strengthening the luxury retail segment.

The company's omnichannel strategy appears to be gaining traction, supported by its partnership with Dada, which provides access to major chain retailers and FMCG brands. This is complemented by growing momentum in physical retail through 7FRESH and JD MALL, while the JD Procurement and Sales Manager Livestreaming initiative is likely to have contributed to enhanced customer engagement. Additionally, JD Health's digital capabilities, including 24/7 free online medical consultations and pharmacy services, are expected to have positively impacted the quarter's performance.

JD Logistics continues to be a key growth driver, leveraging an expanding network of domestic and overseas warehouses. The company's focus on quick delivery services and strengthened logistics infrastructure in lower-tier cities might have helped penetrate these markets more effectively.

However, these positive factors are likely to be partially offset by challenges in the new business segment and increased fulfillment expenses, including procurement, warehousing, delivery, customer service and payment processing costs, which might have weighed on margins in the third quarter.

Price Performance & Valuation

JD.com shares have returned 35.1% on a year-to-date basis against the industry, the Zacks Retail-Wholesale sector and the S&P 500 index’s return of 33.4%, 35.4% and 26.3%, respectively.

JD has also outperformed its peers — Alibaba BABA and PDD Holdings PDD. While BABA has gained 23.1%, PDD has lost 19.9% year to date.

YTD chart

Now, let us look at the value that JD.com offers to its investors at current levels.

Currently, JD is trading at a discount with a forward 12-month P/E of 9.09X compared with the industry’s 25.36X, reflecting a good investment opportunity.

JD’s P/E F12M Ratio Depicts Discounted Valuation

Investment Thesis

JD.com approaches third-quarter 2024 earnings with mixed indicators across its business segments. The company's core retail division demonstrates resilience through its diversified product categories and strategic partnerships, particularly in luxury retail with SMCP brands. Its logistics network expansion and healthcare services evolution signal continued operational development, while investments in lower-tier city infrastructure could unlock new growth opportunities. However, these expansion efforts, coupled with rising fulfillment expenses and challenges in new business segments, present a balanced equation of growth potential and cost pressures. The company's performance will likely reflect both these opportunities and operational challenges in an evolving Chinese e-commerce landscape.

Conclusion

Given the combination of risks and rewards, existing shareholders are advised to hold their positions, whereas prospective investors should closely monitor the company’s key developments instead of rushing in to buy the stock.

Zacks Investment Research

Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

One company value investors might notice is Alibaba (BABA). BABA is currently holding a Zacks Rank of #1 (Strong Buy) and a Value grade of A. The stock is trading with a P/E ratio of 9.13, which compares to its industry's average of 25.34. BABA's Forward P/E has been as high as 13.49 and as low as 7.73, with a median of 8.92, all within the past year.

Finally, our model also underscores that BABA has a P/CF ratio of 14.53. This figure highlights a company's operating cash flow and can be used to find firms that are undervalued when considering their impressive cash outlook. BABA's P/CF compares to its industry's average P/CF of 16.50. Within the past 12 months, BABA's P/CF has been as high as 18.13 and as low as 7.19, with a median of 10.84.

TripAdvisor (TRIP) may be another strong Internet - Commerce stock to add to your shortlist. TRIP is a # 2 (Buy) stock with a Value grade of A.

Shares of TripAdvisor are currently trading at a forward earnings multiple of 11.66 and a PEG ratio of 2.92 compared to its industry's P/E and PEG ratios of 25.34 and 1.04, respectively.

Over the last 12 months, TRIP's P/E has been as high as 19.09, as low as 8.77, with a median of 12.07, and its PEG ratio has been as high as 3.28, as low as 0.49, with a median of 0.67.

TripAdvisor also has a P/B ratio of 2.27 compared to its industry's price-to-book ratio of 5.72. Over the past year, its P/B ratio has been as high as 4.68, as low as 2.07, with a median of 3.07.

These figures are just a handful of the metrics value investors tend to look at, but they help show that Alibaba and TripAdvisor are likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, BABA and TRIP feels like a great value stock at the moment.

Zacks Investment Research

PDD Holdings Inc. Sponsored ADR (PDD) has been on a downward spiral lately with significant selling pressure. After declining 13.9% over the past four weeks, the stock looks well positioned for a trend reversal as it is now in oversold territory and there is strong agreement among Wall Street analysts that the company will report better earnings than they predicted earlier.

Here is How to Spot Oversold Stocks

We use Relative Strength Index (RSI), one of the most commonly used technical indicators, for spotting whether a stock is oversold. This is a momentum oscillator that measures the speed and change of price movements.

RSI oscillates between zero and 100. Usually, a stock is considered oversold when its RSI reading falls below 30.

Technically, every stock oscillates between being overbought and oversold irrespective of the quality of their fundamentals. And the beauty of RSI is that it helps you quickly and easily check if a stock's price is reaching a point of reversal.

So, by this measure, if a stock has gotten too far below its fair value just because of unwarranted selling pressure, investors may start looking for entry opportunities in the stock for benefitting from the inevitable rebound.

However, like every investing tool, RSI has its limitations, and should not be used alone for making an investment decision.

Why PDD Could Bounce Back Before Long

The heavy selling of PDD shares appears to be in the process of exhausting itself, as indicated by its RSI reading of 29.39. So, the trend for the stock could reverse soon for reaching the old equilibrium of supply and demand.

Chinese markets nosedived on Tuesday as news surfaced that President-elect Donald Trump is eyeing two China hawks, Sen. Marco Rubio (R-FL) and U.S. Rep. Mike Waltz (R-FL), for top roles in his administration.

The potential appointments sparked fears of a tougher U.S. stance on China, sending the Chinese yuan tumbling and stock markets sharply lower in Shanghai and Hong Kong.

Yuan, Chinese Stocks Take a Beating

In currency markets, the yuan slid past 7.4250 against the U.S. dollar, a level not seen since early August. The Shanghai Composite dropped 1.39% to close at 3,422, while the Shenzhen Component fell 0.65% to 11,314.

The Hong Kong Hang Seng Index had an even rougher day, plunging 580 points, or 2.8%, to finish at 19,847—its lowest close in six weeks.

This selloff comes amid growing concerns over a hardline shift in U.S.-China relations. Trump's rumored choice of Rubio, an outspoken critic of China, for Secretary of State, and Waltz, a NATO skeptic and China opponent, as national security adviser, suggests a more aggressive U.S. foreign policy toward Beijing.

If confirmed by the Senate, Rubio, who serves on the Senate Foreign Relations Committee, would be the first Latino to hold the position. Known for his hardline stance on China, Rubio has previously advocated for more stringent measures against Beijing on everything from trade to human rights issues.

Tech and insurance stocks bore the brunt of Tuesday's market rout in Hong Kong. Major Chinese firms saw their share prices sink, with Meituan, Lenovo, China Life Insurance and Semiconductor Manufacturing International recording daily losses between 5% and 8%.

U.S.-listed Chinese companies also experienced sharp premarket declines in New York. At 8 a.m. ET, Alibaba Group Holdings Ltd. was down 3.1%, PDD Holdings Inc. dropped 2.8%, Baidu Inc. fell 2.9%, and electric vehicle makers NIO Inc. and XPeng Inc. tumbled 4% and 6%, respectively.

Weak Credit Data Adds to Market Woes

The political tension came on the heels of lackluster credit data in China, adding to investors’ anxiety. October's new loans from Chinese banks totaled just 500 billion yuan—well below the forecast of 700 billion yuan and a sharp drop from September's figures. The disappointing credit numbers, coupled with the lowest monthly credit growth in 15 years, indicate that China's domestic demand remains fragile.

"China’s economy remains weak. The government seems to lack the will, or the way, to stimulate consumer demand," said veteran Wall Street strategist Ed Yardeni, president of Yardeni Research.

"China announced a $1.4 trillion financing package on Friday. That’s a big number, but it will mostly go to cleaning up and refinancing local government debt," Yardeni added, underscoring skepticism about Beijing's ability to spur economic growth.

David Morrison, senior market analyst at Trade Nation, attributed the market reaction to a "disappointing" fiscal stimulus package announced last week by the National People's Congress (NPC). "Investors continue to respond to the underwhelming fiscal stimulus... There's now the prospect of a huge rise in tariffs, both in size and scope, on exports to the U.S. as threatened by President-elect Donald Trump," Morrison said.

Bank of America analyst Anna Zhou echoed concerns about the limited impact of recent policy measures but sounded slightly more optimistic about the future.

"Weak loan growth for both households and corporates continues to underscore fragile domestic demand," Zhou said.

"To turn credit demand around, more policy support is warranted. The recent pivot in policy stance has been a welcoming sign... we expect more measures to be rolled out in 2025 on both monetary and fiscal fronts, which could help stabilize demand and translate into better credit growth."

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© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.