China, the world’s second-largest economy, is expected to grow around 5% this year, slower than the double-digit growth of past decades amid continuing weakness in the property market and subdued external demand. Also, the nation has faced economic challenges, such as unprecedented levels of youth unemployment, deflation, and an aging population.
Additionally, in 2024, China plans to allocate 1.67 trillion yuan (around $234.50 billion) for defense expenditures, marking a 7.2% increase, and has set an inflation objective of around 3%. The country will also create more than 12 million jobs in urban areas.
Despite lingering macroeconomic challenges, the Chinese economy advanced 5.3% year-over-year in the first quarter of 2024, exceeding market forecasts of 5% growth and higher than 5.2% in the prior period. The economic expansion was fueled by continued support measures from Beijing and spending related to the Lunar New Year festival.
Besides, according to Statista, revenue in the Chinese e-commerce market is expected to reach $1.47 trillion in 2024. Further, revenue is projected to show a CAGR of 10% during the forecast period (2024-2029), resulting in a market volume of $2.36 trillion by 2029.
Amid this backdrop, let’s compare two China stocks, PDD Holdings Inc. (PDD) and JD.com, Inc. (JD), to analyze which stock dominates the market.
The Case for PDD Holdings Inc. Stock
Valued at $192.61 billion by market cap, PDD Holdings Inc. (PDD) is a multinational commerce group that owns and operates a portfolio of businesses. It operates Pinduoduo, an e-commerce platform that provides products in categories, including agricultural produce, apparel, shoes, bags, mother and childcare products, and food and beverage. It is based in Dublin, Ireland.
PDD’s stock has gained 25% over the past six months to close the last trading session at $138.69. Over the past nine months, the stock has surged 70.3%.
PDD’s trailing-12-month gross profit margin of 62.96% is 72.1% higher than the industry average of 36.59%. Likewise, its trailing-12-month EBIT margin of 23.70% is 211.3% higher than the industry average of 7.61%. Also, its trailing-12-month EBITDA margin of 24.02% is 114.3% higher than the industry average of 11.21%.
For the fourth quarter that ended December 31, 2023, PDD’s revenues grew 123.2% year-over-year to $12.52 billion. Its non-GAAP operating profit increased 111.9% from the prior year’s quarter to $3.46 billion. Further, non-GAAP net income attributable to ordinary shareholders increased 110.2% year-over-year to $3.59 billion.
Also, the company’s non-GAAP earnings per ordinary share increased 108.2% year-over-year to $0.60.
Street expects PDD’s revenue for the first quarter (ended March 2024) to increase 98% year-over-year to $10.55 billion. The company’s EPS is estimated to grow 48.1% year-over-year to $1.45 for the same quarter. Moreover, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters, which is excellent.
PDD’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
PDD has an A grade for Quality and a B for Growth, Momentum, and Sentiment. It is ranked #9 among 39 stocks in the China industry.
Click here for the additional POWR Ratings for PDD (Value and Stability).
The Case for JD.com, Inc. Stock
With a $51.03 billion market capitalization, JD.com, Inc. (JD) offers computers, communication, consumer electronics, home appliances, and general merchandise products. The company is headquartered in Beijing, the People's Republic of China.
JD’s stock has gained 31.4% over the past month but plunged 9.3% over the past nine months to close the last trading session at $33.35.
JD’s trailing-12-month asset turnover ratio of 1.77x is 78.6% higher than the industry average of 0.99. However, the stock’s trailing-12-month gross profit margin and EBIT margin of 8.77% and 2.67% are 76.2% and 65.4% lower than the industry averages of 36.79% and 7.71%, respectively.
For the fiscal fourth quarter, which ended on December 31, 2023, JD’s net revenues increased 3.6% from the prior-year quarter to $43.11 billion. Also, non-GAAP net income attributable to the company’s ordinary shareholders amounted to $1.19 billion and $0.75 per ADS, up 9.9% and 10.2% from the year-ago value, respectively.
However, the company’s income from operations declined 58.1% year-over-year to $285 million.
Analysts expect JD’s revenue for the first quarter (ended March 2024) to increase 2% year-over-year to $35.68 billion. However, its EPS for the same quarter is projected to decline 6.1% year-over-year to $0.64. Moreover, the company has topped consensus revenue and EPS estimates in each of the trailing four quarters.
JD’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall C rating, translating to a Neutral in our proprietary rating system.
The stock has a C grade for Stability and Quality. JD is ranked #11 in the same industry.
In addition to the POWR Ratings I’ve just highlighted, you can see JD’s ratings for Growth, Momentum, Sentiment, and Value here.
Breaking Down Non-U.S. E-Commerce Giants: PDD vs. JD
China has demonstrated proficient management of economic challenges in the past, which has acted as a stabilizing force during periods of uncertainty. Despite ongoing macroeconomic headwinds, the nation reported better-than-expected economic growth in the first quarter. Additionally, proactive governmental actions are anticipated to fuel continued economic expansion.
Leading Chinese companies PDD and JD stand to capitalize on the optimistic economic outlook. However, PDD’s higher profitability, strong financial performance, and promising near-term outlook favor it as the better China stock pick.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the China industry here.
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PDD shares were trading at $140.84 per share on Wednesday morning, up $2.15 (+1.55%). Year-to-date, PDD has declined -3.74%, versus a 11.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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