Which Chinese e-commerce giant is a good investment?

The Chinese e-commerce landscape is dominated by PDD Holdings ( PDD ), Alibaba ( BABA ), and JD.com ( JD ). Using the TipRanks Stock Comparison Tool, I’ll explain why I consider JD.com a Buy and a strong investment, while I rate Alibaba a Buy but have a Hold rating on PDD. Ultimately, JD.com is the least risky investment and the most favorable option for investors.

PDD Holdings (PDD)

Let’s start with why I consider PDD stock a hold. PDD Holdings operates the e-commerce platform Pinduoduo and online marketplace Temu. I have a Hold rating on this stock, mainly because it came out during the COVID-19 pandemic and its stock has struggled to keep up with the broader market. So far this year, the company’s stock price has fallen 32%, and shares are currently trading at just under $100.

In terms of valuation, the stock is trading at a forward price-to-earnings (P/E) ratio of 10, which may seem cheap and attractive at first glance. However, when we examine the company’s top performance, it becomes clear that the stock is trading at a high 2.8 times price-to-sales (P/S) ratio, which is three times higher than the industry average. This discrepancy suggests that while PDD’s valuation reflects strong growth prospects, there are concerns about whether these prospects will materialize.

While it’s true that Temu has been a top app in the US since its launch in 2022, that success hasn’t helped the company’s bottom line. PDD’s second quarter revenue was below expectations. Despite this, analysts predict a substantial 65.5% revenue growth for PDD Holdings this year, potentially reaching $56.93 billion. However, the company faces significant risks. US politicians are urging President Joe Biden to address de minimis trade loopholes, which could negatively impact Temu’s sales. PDD has warned that its operations could be “significantly and adversely affected” if the current tariff exemptions are removed.

Is PDD a buy, according to Wall Street experts?

Despite my Hold position on PDD, the consensus view of 13 Wall Street analysts is that the stock is a Strong Buy. There are 11 buy, two hold and no sell ratings on the stock. PDD’s average price target of $159.91 suggests a potential upside of 68.34% from where the stock is currently trading.

Citigroup ( C ) analyst Alicia Yap, who downgraded PDD to a Neutral rating, raises some concerns. It notes that PDD’s global business may be adversely affected by the “evolving external environment and non-commercial factors” and considers the potential commercial risks to be significant.

Read more analyst ratings on PDD stock

Alibaba (BABA)

My bullish view on Alibaba is based on the company’s diversified businesses, decent growth and solid cash balance. As the undisputed leader in China’s e-commerce sector, Alibaba operates through Taobao and Tmall. Its ecosystem includes AliCloud, logistics arm Cainiao and Ant Financial.

Despite the company’s strong market position, Alibaba’s latest quarterly results fell short of expectations. In the second quarter of this year, Alibaba reported revenue of 243.24 billion yuan (about $33.4 billion), up 4 percent year-on-year but below expectations of 249.05 billion yuan. Fortunately, the company trades at a relatively low valuation of 9.7x forward P/E and a P/S ratio of 1.6x, which are better multiples than PDD stock.

Alibaba’s cash position is another reason to value the stock. With $55.8 billion in net cash, equivalent to 27 percent of its $204.32 billion market capitalization, Alibaba authorized a $31.9 billion share buyback program that will reduce the number of shares of the company for the benefit of the investors who own the shares.

Is BABA a buy or sell?

My bullish view of Alibaba is shared on Wall Street. BABA stock currently enjoys a Strong Buy rating among the 16 analysts that track the company’s progress. 13 analysts rate the stock a Buy, three rate it a Hold and there are no Sell ratings. The average price target of $109.53 indicates a 29.33% upside potential for Alibaba stock.

Jefferies ( JEF ) analyst Thomas Chong is particularly bullish on BABA stock. He says he appreciates Alibaba’s clear strategy in different business segments and the completion of its dual main listing in Hong Kong in August this year.

Read more analyst ratings on BABA stock

JD.com (JD)

Last but not least is JD.com, the stock I’m most bullish on. As one of the largest e-commerce platforms in China, JD.com operates on a direct retail model – buying products from suppliers, holding inventory and selling directly to consumers. JD.com is less diversified than Alibaba and has slower growth than PDD. Over the past three years, JD has seen its revenue grow by 8.9% per year, well behind PDD’s 58.4% increase. Analysts expect sales growth of just 6.2% at JD.com this year.

So why am I bullish on JD? Largely because JD.com has a solid balance sheet, with $28.8 billion in cash and minimal debt. That money represents more than half of the company’s $42 billion market capitalization. Despite challenging macro conditions, it has consistently beaten earnings per share (EPS) estimates for at least 20 consecutive quarters. That consistency, combined with its low valuation — just seven times its P/E ratio and a P/S ratio of 0.27 times — makes JD stock much cheaper to buy than Alibaba and PDD.

Is JD a buy according to Wall Street?

Wall Street analysts are also bullish on JD.com. Twelve professional analysts give the stock a consensus Strong Buy rating. Nine out of 12 analysts have a buy rating, while the remaining three rate the stock a hold. There are no sell ratings for the stock at this time. The average price target of $38.09 suggests a potential upside of 45.16% for JD.com shares.

Barclays ( BCS ) analyst Jiong Shao is bullish on JD.com, noting that despite a slowdown in net product revenue growth for the second quarter, the company saw an increase in overall merchandise sales and significant improvements in gross operating margins and adjusted. Additionally, JD’s share buyback of $2.1 billion in Q2 of this year reflects the company’s financial health.

Read more analyst ratings for JD stock

Conclusion – JD.com stands out

The strong balance sheet and updated valuation make JD.com stand out as the investment of choice among this trio of Chinese tech titans. Alibaba, which I also rate a Buy, remains a solid long-term investment due to its diverse operations and solid financial position. While PDD Holdings offers the greatest growth potential, its stock trades at a much higher valuation compared to its peers and faces increased regulatory challenges that could affect future growth. Therefore, I believe a neutral outlook is warranted for PDD Holdings.

Disclosure