We recently compiled a list of 7 cheap internet stocks to invest in now. In this article, we’ll take a look at where PDD Holdings Inc. (NASDAQ:PDD) compares to other low-cost Internet stocks.
What’s happening to the Chinese stock market
Recently, the Chinese stock market has seen a strong rally, led by some aggressive government measures to boost the economy. China is the world’s second largest economy and a major player in the technology sector. This massive economy has faced a number of challenges in recent years in the form of a sharp downturn in the housing market and a lack of consumer confidence.
The government’s measures include interest rate cuts and injecting liquidity into the market. On September 24, Reuters reported that China’s central bank cut bank reserve requirements by 50 basis points and also cut the interest rate by 20 basis points to 1.5%. In addition, the bank also plans to issue 2 trillion yuan in special sovereign bonds.
These measures led to the CSI 300 index trading higher. After the announcement, the index closed up 4.5%, while the Hong Kong index gained 3.6%. This move by the Chinese central bank is said to have a positive effect across the world. Analysts in the US are already discussing the news as “China Boost”. While many analysts believe this boost will be short-lived, others are confident that it is a positive mood and will benefit the market in the long term.
David Tepper, founder and president of Appaloosa Management and owner of the Carolina Panthers, recently joined CNBC for an interview to talk about the global impact of the Chinese stimulus.
Drawing a comparison between the Chinese and US stock markets, Tepper pointed out that Chinese stocks have been trading at single-digit multiples with earnings expected to grow in double digits at least for major stocks. On the other hand, the US S&P average stands at more than 20 times.
Tepper believes China has exceeded expectations with the recent move and, citing Chinese government officials, stressed that they are willing to do more if necessary. He also highlighted that the central bank is encouraging share buybacks and is also lending money to do so at very cheap rates. This is a domestic stimulus that will encourage consumption and Tepper believes that the Chinese government is doing everything it can to revive the economy.
Speaking about the global impact of this move, Tepper said that the European market is already making cuts, the US market has already seen one cut with more expected throughout the year, and with the Chinese cuts it is expected that the Japan will follow suit. Tepper believes this is a very positive scenario for undervalued stocks in China and the world in general. Even as an American investor, Chinese stocks look cheap compared to the market average. Furthermore, Tepper believes that the US is currently not a cheap market, but is slightly overvalued. Although it is a difficult comparison, if you compare the price-to-earnings ratio of global stock markets, the US will find itself slightly overvalued.
Our methodology
To compile the list of 7 cheap internet stocks to invest in now, we used Finviz stock screener and ETFs. Using these sources we aggregated a list of 15 Internet stocks. From these stocks, we selected stocks that are trading below the forward P/E ratio of 23.98 (the market’s forward P/E according to the Wall Street Journal) and that are expected to grow earnings during the year . Once we had the list of cheap internet stocks, we ranked them by the number of hedge funds that held stakes in them as of Q2 2024, which we took from Insider Monkey’s database of more than 900 hedge funds. The list is ranked in ascending order by number of hedge fund holders.
Why do we care what hedge funds do? The reason is simple: Our research has shown that we can outperform the market by imitating the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up of a customer using the company’s e-commerce platform while shopping online.
PDD Holdings Inc. (NASDAQ:PDD)
Forward P/E ratio: 9.49
Earnings growth this year: 84.70%
Number of hedge fund owners: 86
PDD Holdings Inc. (NASDAQ:PDD) is another leading e-commerce group with a broad range of businesses. Pinduoduo and Temu are, among others, two of the company’s main platforms. It has built a network of logistics, sourcing and fulfillment capabilities to connect businesses with people.
Less than a decade has passed since the company was founded. In this short period, PDD Holdings Inc. (NASDAQ:PDD) has grown to compete with the giants and is now recognized as the third largest e-commerce company in China.
One of the company’s key differentiators is its focus on small and medium-sized businesses. This makes its product listings cheaper than those of its competitors, thus attracting more users. During the second quarter of 2024, the company revealed that it has more than 167 million monthly active users and approximately 50 million of these users are from the United States.
In terms of financial growth, PDD Holdings Inc. (NASDAQ:PDD) is also doing great. Revenue in the most recent quarter grew 86% year-over-year to approximately $13.74 billion, with net margins growing 8% over the same period.
Its cheap valuation is another attraction for its investors. The stock trades at just 9.49 times its forward earnings, with analysts forecasting its earnings to grow 84.7% for the year. Therefore, it makes it one of the cheapest internet stocks to invest in right now.
Hayden Capital said the following about PDD Holdings Inc. (NASDAQ:PDD) in its Q2 2024 investor letter:
“PDD Holdings Inc. (NASDAQ:PDD): A few weeks ago, Latepost (one of China’s leading technology news outlets) confirmed that Pinduoduo’s online grocery venture is solidly profitable (LINK). According to the article, Duoduo Grocery is capable of achieving net profit margins of around 5% in competitive markets (where they go up against Meituan Select). In non-competitive markets, they can achieve net margins of around 10 – 15%.
The company does not disclose the exact size of Duoduo Grocery, but our calculations indicate that it will likely be around ~RMB 300 billion this year, and continue to grow in double digits. At that level, the division will likely contribute about $2.5 billion to annual profits.
That’s an impressive achievement, but certainly not a big step forward in light of the total net profits of $17.6 billion the company is expected to make this year (~14% of overall profits)…” (Click here to read the full text)
Overall PDD ranks 2nd on our list of cheap internet stocks to buy. While we recognize the potential of PDD as an investment, our belief lies in the belief that AI stocks are more promising in delivering higher returns and doing so in a shorter time frame. If you’re looking for a promising AI stock that’s trading at less than 5 times its earnings, check out our report on cheapest AI shares.
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Disclosure: None. This article was originally published on Insider Monkey.
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