PDD Holdings shares could rise by double digits again this week

Watch out for a dip buying opportunity PDD Holdings Inc. NASDAQ:PDD as China’s economy beat expectations this quarter. Analysts may find their hands forced to increase their current price targets when comparing PDD and similar peers Alibaba Group NYSE: CHILD AND JD.com Inc. NASDAQ:JD.

Investors in general are moving away from Chinese stocks as the nation has become “uninvestable.” However, some recognize that, in an uncertain interest rate cycle in the United States, not all Chinese bonds are created equal. The Federal Reserve (Fed) has hinted at cutting interest rates up to four times this year; The Goldman Sachs Group Inc. NYSE:GS now he thinks there might only be three.

The FedWatch tool al CME Group Inc. NASDAQ: ECM points out that traders are pricing in these cuts by May or June of this year, meaning a U.S. stock market tantrum could be underway. Mega investors like Ray Dalio and Michael Burry (the guy who defined the 2008 financial crisis) are now comfortably entering the Chinese stock market.

The PDD brings the wind at your back

In March 2024, China’s economy reported higher-than-expected inflation rates: 0.7% versus 0.4% expected. Although it is nothing serious, this shows the world that the nation could prepare a comeback in the coming months if it wants this to become a trend.

Naturally, the nation’s consumer discretionary stocks are starting to rise to the top of the watch list for some of these big investors. While Dalio and Burry have to deal with millions due to their large funds, you can look at smaller companies (which bring much more upside) like PDD.

Now that the Chinese government is implementing stimulus measures to save its economy and stock market, you can count on a potential surge in consumer demand for these stocks. But don’t just take economic theory for this; this is how the PDD stands up to its peers.

The markets see a double-digit rise

While the consensus price target on PDD is $131.3 per share, which means only a 5% upside from today’s prices, other analysts see the writing on the wall. Those of Benchmark e Jefferies Financial Group Inc. NYSE: JEF see a price target of $215 and $157 per share.

Analysts from these two rating companies are in tune with market expectations, predicting a rise in the stock of 70% and 24%. But these analysts are not the only ones with a bullish view on PDD; some institutions also participate.

Vanguard Group reportedly increased its position in PDD stock by 0.3% as of March 2024. It may not seem like a lot, but that small percentage represents a $10.6 million transaction. THE American International Group Inc. NYSE:AIG he also increased his stake in the company by 4%, or about $311,000.

Head and shoulders above peers

Because their latest quarterly earnings report showed a nearly 100% increase in revenue. This data occurred at a time when the Chinese economy was considered frozen, with many participants believing that the next quarterly results will be even better than previous ones.

There are ways to gauge what the market is thinking and how it perceives the potential for this stock to move when it next releases. First of all, the earnings per share (EPS) growth rate will likely determine a stock’s valuation, so the better the projections for EPS, the higher the stock’s valuation should be.

In the case of PDD, analysts believe that EPS can grow up to 26% over the next 12 months. This rate is far higher than JD.com’s 13% and Alibaba’s 3.4% decline. Because of this industry-leading growth, markets are willing to pay a higher premium for the stock.

Trading at a forward price-to-earnings ratio (forward P/E) of 14.3x puts PDD stock at a 77% premium to JD.com and its 8.1x valuation. Likewise, since Alibaba trades at a forward P/E of 8.3x, PDD commands a 72% premium over the most recognized e-commerce company in China.

Furthermore, price action is on your side; PDD stock is trading 83% of its 52-week high. This price level compares to JD.com’s 61% and Alibaba’s 70%, thrown into a bear market by Wall Street’s definition (decline of 20% or more from recent highs).

Before you consider American International Group, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and American International Group wasn’t on the list.

While American International Group currently has a “Moderate Buy” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here