Temu app parent company PDD Holdings is Tuesday's selection for IBD 50 Stocks To Watch. The China-based e-commerce stock is trying to rise from a support level, setting up a potential buy area.
Chinese stocks rallied overnight on a Bloomberg report that authorities in Beijing are considering a $278 billion stimulus package to boost the ailing stock market. PDD stock has held up better than most other Chinese stocks over the past year.
The stock reversed slightly lower at midday Tuesday. But it is holding above the 50-day moving average, and a bounce off the line would create a buy area.
The e-commerce company operates the Temu app that sells low-cost merchandise. Its app is available in 48 countries and has been popular in the U.S. and U.K. since its launch in the fall of 2022. And it has outpaced Amazon Marketplace with more than 31 million downloads worldwide between Jan. 1 to Jan. 22, according to Statista.
Its Chinese rival is Alibaba. Temu is tied with MercadoLibre for the top spot out of 60 stocks in the internet retail industry group. Amazon.com holds the No 3 spot. The group ranks No. 27 out of the 197.
PDD Stock Sets Up
PDD stock tested its 10-week moving average and is finding support. Investors could use a buy range from 142.44 to 156.68. It also formed a bullish four-weeks-tight pattern, which is a variation of the three-weeks-tight pattern. The four-week formation gives a 152.99 buy point, which coincides with its 52-week high from Jan. 11.
PDD stock gapped up 18.1% in huge volume after PDD beat its third-quarter earnings and sales estimates on Nov. 28. It climbed to the new high before reversing and gapping down on Jan. 16, as Chinese stocks fell in sympathy with Baidu. Reports said Baidu's AI platform was linked to Chinese military research.
PDD stock took another blow on Jan. 17, after a report that China's fourth quarter and full-year 2023 GDP growth was one of the lowest levels in decades. Chinese stocks fell hard following the report. The stock sank below its 21-day exponential moving average but found support at its 50-day moving average. Its relative strength line followed suit and pulled back amid the sell-off.
Profits Grow While Sales Ramp Up
PDD's third-quarter earnings grew 31%, up from 28% in the prior quarter, but lagged the 117% increase two quarters ago. Quarterly sales growth accelerated to a hearty 89% from 54% and 46% in the prior two periods. Analysts expect full-year 2023 earnings growth of 24% and 31% in 2024, according to MarketSmith.
PDD stock holds an IBD Accumulation/Distribution Rating of B+, indicating fairly heavy institutional buying over the last 13 weeks.
Mutual funds have also piled in the stock, with 1,655 funds owning PDD stock in December, up from 1,586 in September and 1,481 in June. PDD boasts a best-possible 99 IBD Composite Rating. Meanwhile, its EPS Rating is a moderate 74, which includes previous year's losses in the calculation.
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