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Pinduoduo (NASDAQ:PDD) shares were downgraded from Overweight to Equal-Weight with a $70 per share price target by Morgan Stanley analyst Eddy Wang on Monday.
Pinduoduo shares fell 10% during the session to $54.70.
Wang said in a note to investors that although they believe the company’s long-term growth prospects are intact, its recent share price outperformance driven by multiple re-rating and high market expectations for 2Q22 and 2H22 leaves limited room for a further beat. As a result, they suggest waiting for a better entry point.
“The stock has risen 144% from its trough level in March, significantly outperforming e-commerce peers (i.e., 74% for VIPS, 55% for BABA, 51% for JD). However, 2023 consensus earnings estimates for PDD were revised up by just 6% during the period, implying that the rally was driven primarily by multiple re-rating,” wrote Wang. “We think the re-rating mainly reflected PDD’s implied GMV re-acceleration and market expectations that China’s regulatory environment for the Internet sector will be stable following regulatory reset, and believe re-rating has now come to an end.”
The analyst said that while the current valuation “looks reasonable,” they want to see Pinduoduo deliver better-than-expected GMV/revenue growth and improve margins before turning more positive on the shares.
