Well, PDD did it again, another smasher above consensus, with the Top Line inflecting well above 100%:
Revenue growth is accelerating. Forward numbers for the next few quarters now look way too low.
You NEVER SEE revenue growth (caveat, it IS China) inflect from 66%, to 94%, to 123% YoY and then suddenly decelerate dramatically to 74% and 58% unless there is a sharp recession.
Forward numbers have to come up materially.
To wit: Since early January the Shorts have covered decisively from 35M to 23M shares. Why are they finally giving up?
We see $11 in EPS this year.
We plan to buy the first flush.
We will increase size on any close above $153 – a level it has failed at numerous times since December.
Assuming $153 is taken out, our first upside trim zone is $165-$180. Thereafter, on a 6-12month basis, $200.
Since there is headline risk that Tiktok could be banned shortly, the Bears will say the same will happen with PDD's international growth driver, Temu. That is one reason to stay small here.
Even with this risk in play, my counter to Bears’ reasoning is that PDD will become incrementally more profitable if TEMU is no longer in the US as it is investing so heavily here still.
Having said that, this growth is just too attractive and the valuation is too compelling at 14x our $11 in 2024 EPS estimate – now 45% above where consensus was for 2024 ahead of this report – to not buy in.
There is a similar scenario at play here as we saw in POWL, SMCI and ROOT, where the stocks were cheaper AFTER a 20%+ gap up.
Finally, China names remain out of vogue, so this is another reason to keep allocations small.
STOP LOSS: We will use a tight 6% stop on this name on whatever our blended cost comes in at.
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Disclosure: We are long PDD stock. We may change our positioning at a moment’s notice, without notifying you of any such moves.
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