Pinduoduo Inc.’s stock price has surged to a price of $75.54 today. Ending the day with a 6.3% increase, PDD shares outperformed the S&P500 and Dow Industrial composite indices by 5.0% and 6.0% respectively, but are still well below their 52 week high of $106.38. Now, the large-cap Consumer Discretionary company is 29.4% below its average target price of $106.99 and has an average analyst rating of buy.
Pinduoduo's trailing 12 month price to earnings (P/E) ratio is 21.3, which is its share price divided by its trailing earnings per share (EPS) of $3.55. The company has a forward P/E ratio of 14.1 based on its forward EPS of $5.36 -- which is an estimate of future earnings provided by management. The P/E ratio tells us how much investors are willing to pay for each dollar of the company's net earnings from its sales operations. By way of comparison, the average P/E ratio of the Consumer Discretionary sector is 22.33, but a company's price can remain stable for a long time even if it is over or undervalued.
Another metric for valuing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value. The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ wildly based on who is doing the counting. Pinduoduo's P/B ratio of 0.79 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock.
PDD's average free cash flow over the last few years is $30.08 Billion, which represents the sum of inflows and outflows of cash from all sources, including capital expenses.. This is the pool of liquidity that the company can use to reinvest in its business or pay out to its equity investors in the form of a dividend. Despite having cash on hand for this purpose, Pinduoduo has not offered a dividend within the last twelve months.
Since it has a an average P/E ratio, an exceptionally low P/B ratio, a pattern of improving cash flows, and consistently negative margins, Pinduoduo is probably undervalued at current prices. Make sure to complement this brief quantitative review with a qualitative analysis of your own!
