PDD Holdings Inc. (NASDAQ:PDD) Emerges as a Top Value Stock Pick

For investors looking for chances where a company's market price may not fully show its basic financial condition, a systematic filtering method can be a helpful first step. One such method is to find stocks that display a strong mix of features: a price that is low compared to basic measures, along with good earnings, a sound financial position, and acceptable expansion potential. This approach fits with main value investment ideas, which center on finding well-run firms selling for less than their true value, thus offering a possible buffer. A recent filter using these measures has pointed to PDD HOLDINGS INC (NASDAQ:PDD) as a stock deserving more attention.

A Detailed View of the Basic Report

A thorough basic analysis report for PDD Holdings gives a measured view across five important sections: Price, Condition, Earnings, Expansion, and Payout. The firm's total basic score of 7 out of 10 is supported by very high marks in Earnings and Financial Condition, with a Price score that implies the stock is priced well compared to similar firms and its own income.

Price: The Basis of the Chance

The main draw for a value-focused filter is in the price measures. PDD's current price looks low on several important counts, which is exactly what this filtering plan aims to find.

• Price-to-Earnings (P/E): With a past P/E ratio of 10.99, PDD is priced lower than 90% of similar firms in the Broadline Retail group. This ratio is also much under the current S&P 500 average of about 26.3.
• Forward P/E: The price story stays the same looking forward, with a Price/Forward Earnings ratio of 9.68. This shows the market's views for future income are also priced at a lower level, doing better than 86.67% of group rivals.
• Enterprise Value to EBITDA: Using this measure, PDD is priced low within its group, with 93.33% of companies having a higher price.

This mix of low income multiples is the first sign that creates interest in a value filter. It suggests the market may be setting a low value on the firm's income, a key idea for investors seeking a difference between price and true worth.

Financial Condition: A Base of Soundness

A low price alone can be misleading if the firm's financial base is weak. So, the filtering process stresses financial condition, a section where PDD does very well with a score of 9 out of 10. A sound financial position lowers risk and offers steadiness, which is key for the long holding time common in value investment.

• Sound Solvency: PDD has an Altman-Z score of 5.51, showing low short-term failure risk and doing better than 83.33% of its group. Importantly, the firm has no debt that charges interest, leading to a Debt/Equity ratio of zero.
• Good Liquidity: The firm shows strong short-term financial ability with a Current Ratio and Quick Ratio both at 2.36. These levels are above most peers and show no trouble in meeting near-term needs.

This very good financial condition gives the steadiness that lets investors focus on the business's income potential without too much worry over debt or cash problems, fitting with the value investor's liking for lasting firms.

Earnings: High-Standard Income

Value investment is not only about buying low-priced stocks, it is about buying sound firms at a low price. PDD's Earnings score of 9 out of 10 confirms it is a firm with high earnings, which supports investor focus and helps show that low price multiples may be a chance.

• Excellent Returns: The firm creates a Return on Assets (ROA) of 16.66% and a Return on Invested Capital (ROIC) of 19.72%, putting it in the top part of its group. A high ROIC is especially important as it shows the firm is good at creating profits from its capital.
• Strong Margins: PDD keeps a good Profit Margin of 24.43% and an Operating Margin of 22.10%, both of which rank with the best in the Broadline Retail group. A solid Gross Margin of 56.65% further shows price strength and operational effectiveness.

This level of earnings is critical. It shows that the firm's low price is not a sign of poor operations but could instead be a market error in pricing a firm with high earnings, a standard value investment situation.

Expansion and Points to Note

While the filter focuses on price, condition, and earnings, it also needs acceptable expansion to avoid firms that are not growing. PDD's Expansion score is a middle 6. The firm shows a very strong past expansion path in Sales, averaging 67.20% each year over recent years, though this speed is slowing. Experts expect future sales expansion to stay acceptable at over 10% each year. A small drop in Earnings Per Share (EPS) over the past year and a slowing expansion view are noted in the report, which may partly explain the stock's low price. For the value investor, this balance, slower but still positive expansion in trade for a much lower price and excellent basic measures, can form the ground of an investment idea.

Is PDD a Fit for a Value Portfolio?

Based on the specific measures of the "Acceptable Value" filter, looking for good price (7+) along with acceptable earnings, condition, and expansion, PDD Holdings shows a strong profile. It displays the signs of what value investors often seek: a financially very sound and highly profitable business trading at income multiples that are low both compared to its history and its peer group. The firm's main platforms, Pinduoduo and Temu, have driven notable size increase, and the current price may not fully show the lasting nature of its earnings and its long-term market standing.

For investors curious about viewing other stocks that pass similar value-focused filters, you can see the full Acceptable Value Stocks filter on ChartMill.

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Disclaimer: This article is for information only and does not make up financial guidance, a suggestion, or an offer to buy or sell any security. The study is based on data and a set filtering method, investors should do their own complete research and think about their personal financial situation before making any investment choices.