Shares of the Chinese e-commerce company Pinduoduo (NASDAQ:PDD) gained over 89% in six months. This sharp up-move in PDD stock comes on the back of its ability to deliver stellar sales even in a challenging operating environment. While PDD has already gained quite a lot, analysts’ average price target shows further upside from current levels. Let’s dig deeper.
PDD’s Recent Performance
Pinduoduo’s revenues increased by 36% and 65% in Q2 and Q3, respectively. This growth is incredible as macro-economic issues and COVID-led challenges continued to play spoilsport. It also reflects the resilience of PDD’s business model.
What stands out is that Pinduoduo outperformed its peers in terms of growth. For instance, its rival JD.com’s (NASDAQ:JD) top line increased only by 5.4% and 11.4% in Q2 and Q3, respectively.
PDD’s strong revenue growth, lower business-related expenses, and postponement of certain projects cushioned its bottom line. It’s worth highlighting that PDD’s adjusted operating income surged 161% in Q2 and 277% in Q3. Thanks to this solid growth, Pinduoduo handily exceeded the Street’s expectations on the bottom line front.
What is the Future of PDD Stock?
PDD’s ability to provide an affordable shopping experience and value-for-money products could continue to drive its top line. However, it is highly unlikely that the company will be able to sustain the level of profitability achieved in Q2 and Q3 in the near-term.
PDD is increasing its investments to strengthen its core capabilities, including supply-chain efficiency. This will likely put pressure on its margins and might restrict the upside in its stock price.
Nevertheless, Wall Street is bullish about PDD stock. Pinduoduo stock has received 14 Buy and two Hold recommendations for a Strong Buy consensus rating. Further, analysts’ 12-month average price target of $107.19 implies 14.74% upside potential from current levels.
Bottom Line
Pinduoduo’s resilient business model, value offerings, and investments in core capabilities provide a solid foundation for long-term growth. However, given the recent rally and short-term pressure on margins, PDD stock could find it hard to grow swiftly.
