Sometimes stocks get so mispriced it makes no sense. Well I think this is one of those times with Pinduoduo.
I am not going to go in depth on the business specifically today since I already have 2 articles on them, you can access them here :
https://substack.com/@dacatalyst/p-203918522 '
Now to the valuation. PDD trades at a P/FCF of about 8x and an EV/FCF of about 4. This is insane for a company of this quality and growth potential but the obvious risk is China. I am not going to sit here and act like I know anything about China but I think this valuation gives you a massive margin of safety. Now to the reverse dcf models.
This is my model that includes all of their massive cash pile. It is hard to tell how much of this cash will be used and whether or not it will get good returns on the investments they make with it. But assuming they use the cash effectively the stock is priced to decline in a big way. I have a hard time seeing PDD decline like this or even at all. Now to my next model.
So in this model I removed all of their cash in the calculation and you can see the stock is priced for a small decline in fcf growth. I did assume of 15x multiple which is higher than today but if you look at the sensitivity table a lot of the growth rates needed are very low and this assumes they took their net cash position and lit it on fire. This seems like a rare setup and I can see why Li Lu has been buying big. Maybe I am missing something and there is fraud or PDD is a dying business but I don’t see it. If you want these models for yourself you can get them here :
https://dacatalyst.gumroad.com/
*This is not financial advice, do your own research*
Thanks for reading and I would love to hear your opinions on PDD in the comments.
By now, before regular hour market closing, major institutional analysts would have posted their price target hours after the announcement of quarterly report.
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But for this time, 2026 Q2, the regular hour stock market is closed, major institutional analysts are still not posting their analysis and price target of PDD.
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Analysis gets more complicated and sophisticated in the direction of the development of PDD!
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PDD is on the right path of up scaling, as per the statement of "2x scale in 3 years" made by the management in previous quarterly report; both Total Assets and Revenue QoQ and YoY positive.
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However, PDD's Net Income QoQ positive but YoY negative, nonetheless beating the YoY estimate of analysts.
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The institutional analysts are holding their pen, waiting for the response from the public, only then proceed to evaluate the public response and finalising the analysis and price target.