So You Still Want To Invest In China?
How about now?
YouTube
Spotify
Apple Podcasts
We had a great discussion on the Investing Power Hour last week (links above) with Paul Cerro. Paul talked in detail about his report on Hims & Hers and then we did a classic Power Hour discussion.
Check out more of Paul’s work here:
There was a wild press release from PDD Holdings — owner of PinDuoDuo and Temu — this morning:
Revenue, earnings, and cash flow are booming. The company has over $30 billion in cash on the balance sheet. And yet, management says this?
“We see many challenges ahead”
In order to improve merchant quality “We are prepared to accept short-term sacrifices and potential decline in profitability”
“revenue growth will inevitably face pressure due to intensified competition and external challenges”
Did something change in the last few months in online discount retail as opposed to two years ago? I understand having concerns about Temu’s business model. Spend a boatload on digital marketing, sell cheap knock-offs with two-week delivery times on a third-party delivery network and well, there isn’t much room for profits.
At least, that makes sense to me. However, the company has maintained huge profit growth (operating earnings were over $10 billion in the last twelve months). Again, I ask, did something radically change this summer?
PDD Holdings stock was off 30% on this press release, unsurprisingly. You can now buy the stock at a forward P/E of 8:
I certainly will not be buying. You get no repurchases or dividends, it is in a foreign country where information and the reality on the ground keep getting murkier for outsiders, and management just announced out of the blue that profits were about to evaporate.
I am not an expert on China. But it looks like a few things may have happened at PDD Holdings (I’m not sure exactly which):
There are some bad scandals lurking under the hood of its merchant base. It wants to fix this before people find out.
The Chinese government is telling them to make these changes. The CCP does not like how profitable they have become.
Management is sincerely lowering profits to entice merchants onto its platform in a bid to enhance the platform’s quality and long-term sustainability with consumers.
It is committing accounting fraud.
None of these potential reasons get you excited to own the stock. Even the one where management is acting honestly (i.e. it has nothing to do with scandals, the government, or accounting fraud) there are still huge risks that blow up in their face. Do you really think Temu will win vs. Amazon?
My feeling is the CCP has told PinDuoDuo what to do. It is already likely they pushed the founder out in 2021:
It is well-documented how much the CCP controls the business environment in China. PDD Holdings is no different.
And you still think Chinese stocks are ownable?
-Brett
Chit Chat stocks is presented by:
Public.com just launched options trading, and they’re doing something no other brokerage has done before: sharing 50% of their options revenue directly with you.
That means instead of paying to place options trades, you get something back on every single trade.
-Earn $0.18 rebate per contract traded
-No commission fees
-No per-contract fees
Options are not suitable for all investors and carry significant risk. Option investors can rapidly lose the value of their investment in a short period of time and incur permanent loss by expiration date. Certain complex options strategies carry additional risk. There are additional costs associated with option strategies that call for multiple purchases and sales of options, such as spreads, straddles, among others, as compared with a single option trade.
Prior to buying or selling an option, investors must read and understand the “Characteristics and Risks of Standardized Options”, also known as the options disclosure document (ODD) which can be found at: www.theocc.com/company-information/documents-and-archives/options-disclosure-document
Supporting documentation for any claims will be furnished upon request.
If you are enrolled in our Options Order Flow Rebate Program, The exact rebate will depend on the specifics of each transaction and will be previewed for you prior to submitting each trade. This rebate will be deducted from your cost to place the trade and will be reflected on your trade confirmation. Order flow rebates are not available for non-options transactions. To learn more, see our Fee Schedule, Order Flow Rebate FAQ, and Order Flow Rebate Program Terms & Conditions.
Options can be risky and are not suitable for all investors. See the Characteristics and Risks of Standardized Options to learn more.
All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Open to the Public Investing, Inc., member FINRA & SIPC. See public.com/#disclosures-main for more information.