Stock Analysis & Ideas

DiDi Global: Affordable Stock, Speculative Investment

I am neutral on DiDi Global (DIDI), as it looks very cheap and has strong growth momentum and competitive advantages, but faces significant geopolitical risk and uncertainty.

DiDi Global is a company that offers mobility technology platforms and provides shared mobility and mobility services internationally. Based in China, the company has provided its services to approximately 550 million users across the globe. Some of its products include Designated Driving, Express, Taxi, Luxe, Bus, Car Rental and sharing, Premier, Bike Sharing, E-bike Sharing, Enterprise Solutions, and food delivery. The company was formed in 2012 and primarily functions in the transport industry. As of 2020, DiDi Global had a total of 15,914 employees and clients in approximately 400 cities.

Strengths

DiDi Global, with its talented teams of employees, resources, and experience, has an opportunity to build a sustainable competitive advantage in the marketplace. Its strong relationships with different bodies in China and across the globe make it relatively easier for the company to navigate through different environmental and political factors.

Moreover, the company has a wide range of copyrights and patents, which gives it the opportunity to rise above the competition. In addition to higher margins, it also has a higher brand awareness compared to its competitors. Overall, the company’s financial statement, balance sheet, and equity are extremely strong.

Recent Results

According to the unaudited financial results in the quarter of 2021 that ended in September, the company garnered revenues totaling $6.623 billion. Last year, the company generated a whopping $21.633 billion.

According to the 2020 financial reports, the basic EPS was $-3.82. The current ratio in September 2021 was 2.90 and the debt to equity ratio was 0.02. As of January 16, 2022, the stock price was $4.67.

Valuation Metrics

DIDI stock is difficult to value, given its brief trading history and focus on China, which brings tremendous geopolitical risk and uncertainty with it. That said, the stock tends to look cheap here, given that it trades at nearly one-third of its IPO price from last summer.

Furthermore, it trades at only 12.83 times its enterprise value to forward EBIT ratio and is expected to grow EBIT by 407.6% in 2022, giving it phenomenal growth momentum.

TipRanks Smart Score

DIDI stock earns a smart score of 4, stemming from bullish blogger opinions, very negative TipRanks investor sentiment, and very bearish news sentiment.

Summary and Conclusions

DIDI is a highly speculative investment given its presence in China, where geopolitical uncertainty is high. That said, the company has numerous competitive advantages stemming from its superior trove of consumer data, strong network competitive advantage, and use of cutting-edge technology.

On top of that, its stock looks quite cheap here, while the company is enjoying very strong growth momentum. As a result, if geopolitical fears prove to be unfounded, DIDI could generate outsized shareholder returns. That said, investors might want to keep the risks involved in investing in China in mind and decide if investing in Chinese companies is suitable for their risk profiles. Even if they do invest, it might be prudent to keep the position small, in order to avoid any major downside in the event that geopolitical risks come to pass.

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