Pinduoduo upgraded at UBS on margin expansion, firm sees 25% upside
Zhong Zhi/Getty Images Entertainment

Pinduoduo (NASDAQ:PDD) shares rose on Wednesday even though investment firm UBS upgraded the Chinese e-commerce firm to buy, noting the potential for margin expansion.
Analyst Jerry Liu raised his rating to buy from neutral, but maintained his $60 price target, noting that revenue and earnings growth are likely to drive a "re-rating" of the stock.
"We upgrade [Pinduoduo] as we believe the company has proven its business model is sustainable, and it can stay profitable despite a slowing macro and intense competition," Liu wrote. 
The analyst added that "balanced" top and bottom line growth are forecast for Pinduoduo's (PDD) future, as the average revenue per user and operating leverage provide benefits.
Pinduoduo (PDD) shares were up nearly 1.5% to $48.27 in early trading on Wednesday.
In addition, Liu noted that EBIT margins are expected to be between 16% and 17% in 2023, though there is room for further improvements this year, as unit economics improve and spending on sales and marketing improves.
Pinduoduo (PDD) could also benefit from a potential Hong Kong list, which Liu added would be considered a "secondary catalyst," in addition to improving margins.
On Tuesday, it was reported that Pinduoduo (PDD), along with several other U.S.-listed Chinese tech firms like Alibaba (BABA) and JD.com (JD) were told by the Chinese government to prepare for more audit disclosures from U.S. regulators.