PDD Holdings stock forecast ahead of earnings: buy or sell?

PDD Holdings (NASDAQ: PDD) stock has done well in the past decade, helped by its strong revenue and profitability growth in China and other countries. It has risen by almost 500% in the past five years, giving it a market cap of over $200 billion, and making Colin Huang China’s richest man.

PDD earnings ahead

PDD Holdings, the parent company of Temu and Pinduoduo, will be in the spotlight this week as the company publishes its quarterly financial results.

These numbers will come a few days after Alibaba, a top rival, released weak results that missed analysts' estimates. Its profit dropped by 27% while its profit margin dropped to 15% during the quarter. 

Analysts are optimistic that PDD’s growth accelerated during the last quarter. The average revenue estimate among Wall Street analysts is that its revenue soared by 133% in Q2 to $13.94 billion. 

This is a good revenue growth for a company that has been in business for almost a decade. It will also be a good number since there are signs that China’s retail spending is slowing as economic jitters rise. 

Most of this growth will be because of Temu, the viral company launched in 2022. Its forward guidance is expected to show that revenue will be $15.1 billion in the third quarter. Also, analysts expect that PDD Holdings’ full-year revenue will be $58.35 billion, 67.50% increase from what it made in 2023.

Most importantly, PDD Holdings is having profitable growth as its earnings per share (EPS) are expected to move to $2.7, up from $1.46 in the same quarter in 2023. The annual EPS estimate is that its profit rose from $6.54 to $12.1.

These results will come a few months after PDD Holdings published strong quarterly results. Its total revenue rose by 131% to $12 billion while its operating profit rose to over $3.5 billion and the net income soared to $3.8 billion. 

PDD Holdings also has one of the best balance sheets in China. In its most recent results, the company said that its cash and cash equivalents rose to over $7.6 billion while its short-term investments jumped to over $25 billion. 

PDD also has over $8.1 billion in restricted cash and $660 million in receivables. Altogether, its total current assets stands at over $43 billion, which is a very good amount for a company that is still growing its operations. Its current assets stood at over $20 billion, giving it a working capital of over $20 billion.

Potential risks ahead

All this explains why analysts are optimistic about PDD Holdings stock. Data by Yahoo Finance shows that the company is followed by 46 Wall Street analysts. Of these, 18 have a strong buy rating while 28 of them have a buy rating. The average PDD stock outlook is $200.95, higher than the current $149.30.

Still, the company has some important risks. Temu is one of its biggest risks because of the challenges of its business model.

Temu is an e-commerce company that lets people buy products directly from their manufacturers in China. By avoiding the middleman, these people can sell their products for an extremely low price.

However, history shows that this is one of the most difficult businesses to succeed in the long term. For example, Wish.com was one of the fastest-growing companies in the sector a few years ago before it imploded recently and was sold for just $173 million. 

PDD has been quite silent about Temu in its recent financial results, meaning that analysts making their calls on the company are doing so blindly.

For now, there are signs that Temu is still growing. Data by Google Trends show that worldwide interest over time has held quite well while another one by SimilarWeb shows that its monthly traffic in July rose by 20% to over 668 million.

The other big risk for PDD Holdings is the ongoing geopolitical tensions between the US and China. Trump, who has a high chance of winning the general election, has threatened to be tougher on China, a move that could see him delist Chinese ADRs.

PDD Holdings stock price analysis

The daily chart shows that the PDD share price has risen in the past few days. The current phase of the rally started when the stock bottomed at $122.48 earlier this month. This was an important level since it coincided with the ascending trendline that connects the lowest swings since May 2023.

PDD shares have crossed the 50-day and 100-day Exponential Moving Averages (EMA) and are approaching the key resistance point at $153, its highest point on January 11. Also, the Relative Strength Index (RSI) is nearing the overbought level.

Therefore, the most likely scenario is where the PDD stock price continues rising this week as buyers target its all-time high of $165.