Why I stopped investing in PDD
In some unique cases, a great company does not necessarily mean a great stock
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If you invest in Chinese stocks at all, PDD is a philosophical conundrum that you can’t bypass. Its business is huge, market capitalization is massive, and future growth potential is tremendous. Its stellar rise is unprecedented in history.
It’s also deliciously cheap. At an EV/EBIT ratio of a mere 6-8 times, a double-digit annual growth rate, and a successful and rapidly expanding global operation, PDD should have been a no-brainer choice for a multi-bagger return in a few years.
Yet, on the other hand, it has been highly secretive and controversial ever since its IPO, leading to persistent worries about whether the company is, in fact, real. Lately, it has also engaged in the highly unusual practice of actively sabotaging its own stock prices.
I’ve long wanted to write about PDD, again. Some readers may remember a popular essay I wrote at Baiguan last year, where I shared my experience dealing directly with PDD’s management, along with some first-hand observations. The core conclusion of that piece ran against a common Western narrative at the time: PDD is not a fraud. It’s just a very unusual company.
My view above hasn’t changed. In fact, I’ll go one step further. PDD is, in many respects, a first-rate company, throughout the world and, I dare say, throughout human history.
I was also a PDD shareholder at one time. I invested, held the stock for a period, and exited with a profit. But earlier this year, I cleared my entire position. Not because the company suddenly became “bad,” but because one core assumption I used to hold finally broke. This essay is about why.
Given the company's controversial nature, I decided to keep this article behind the paywall. However, if you are already a paying subscriber of Baiguan, I am offering you a 56% discount ($300 → $132). You can find the coupon link at the bottom of Baiguan’s paid member benefit page.
(Additionally, you may also gain access by sharing my articles. 1 successful referral = 1 free month. 6 referrals = 6 months. Maximum 12 months.)