Pinduoduo rises as Citi upgrades, sees 'attractive valuation'
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Pinduoduo (NASDAQ:PDD) shares popped in premarket trading on Wednesday after Citi upgraded the Chinese e-commerce firm to buy, noting it sees an "attractive valuation on sustainable profit trend."
Analyst Alicia Yap raised her rating to buy from neutral and kept her $80 price target, noting that Pinduoduo shares fell during the global tech stock sell-off after it reported third-quarter results, largely due to rising interest rate risk which could hurt the broader trend.
However, Pinduoduo has "resilient user metrics," a steady demand for value-for-money products and it could gain in Duoduo Grocery, which could improve "service fee rate and sustainable profit trend hanks to tighter regulation of subsidies," Yap wrote.
"As PDDâs profitability trend is likely to sustain, we switch our valuation to earnings multiple from GMV/revs," Yap penned in the note to clients.
Pinduoduo shares were up nearly 3% to $62.87 in premarket trading.
In addition, Yap said during its Chinese New Year promotional period, 3 billion Reminibi in "red pockets" were distributed on the platform, which resulted in 138% year-over-year growth.
"Growth of ASP and consumer demand orders of lower tier cities were also solid," Yap explained.
Last month, ARK Invest sold off a significant portion of its Pinduoduo holdings as the stock neared a 52-week low.