China is well on its way to recovering from the pandemic-led economic contraction and will continue to be the most important driver of global GDP. According to IMF World Economic Outlook data, the country’s growth contribution is expected to increase by 8.2% in 2021.
Growth in the Chinese economy is largely led by e-commerce and technology stocks that are shaping the digital economy. China’s online retail and entertainment companies have grown substantially since the onset of the pandemic, as people depended on online deliveries and entertainment to get through the pandemic.
To capitalize on the recovery, it could be wise to bet on lesser-known stocks like Pinduoduo Inc. (PDD), GDS Holdings Limited (GDS), and Bilibili Inc. (BILI). These companies are expected to witness significant earnings and revenue growth in the upcoming quarters, as the world is moving toward digitization and innovation at a rapid pace.
Pinduoduo Inc. (PDD)
PDD is an e-commerce mobile platform that provides a range of products like shoes, bags, apparel, food and beverage, fresh produce, electronic appliances, household goods, personal care items, fitness items, and auto accessories in China.
PDD recently announced that it is raising $6.1 billion through an issue of shares and convertible notes to undertake investment in agricultural logistics infrastructure and responsive manufacturing. The company expects to use the proceeds to strengthen its balance sheet, make strategic investments in infrastructure, expanding business operations, making future acquisitions, and entering partnerships.
The company has hosted more than 5 million sellers on their platform and connected more than 12 million farmers through their agricultural initiatives, according to a recently released ESG report. The company expects to bring more people into the digital economy by increasing its resources and strengthening growth opportunities.
PDD’s revenue increased 89% year-over-year to $2.09 billion in the third quarter ended September 2020. Gross profit rose 92.8% from the year-ago value to $1.61 billion, while net cash from operating activities increased 217.8% year-over-year to $1.22 billion.
The consensus EPS estimate of $0.02 for the current quarter ending December 2020 indicates a 120% improvement year-over-year. Moreover, PDD has an impressive earnings surprise history, with the company beating consensus EPS estimates in three out of the trailing four quarters. The consensus revenue estimate of $2.84 billion for the current quarter indicates 84% growth from the same period last year. The stock has gained 264% year-to-date.
How does PDD stack up for the POWR Ratings?
A for Trade Grade
B for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
B for Overall POWR Rating.
The stock is also ranked #1 out of 115 stocks in the China industry.
GDS Holdings Limited (GDS)
Based on the People’s Republic of China, GDS owns and operates data centers. The company offers cloud and consulting services to the internet and banking industries, telecommunications and IT service providers, and large domestic private sector and multinational corporations.
On October 27th, GDS announced the pricing of its global offering of $83.49 per American Depository Share. The company intends to use the net proceeds received from the global offering primarily to expand its platform of data centers through strategic sourcing across markets, and to innovate new technologies related to data center design, construction, and operations.
GDS recently announced that it has extended a legally binding offer to acquire 100% of the equity interests in a major data center in the Shunyi district of Beijing. This acquisition will help the company to strengthen its position in Beijing.
GDS’s revenue increased 43% year-over-year to $224.60 million in the third quarter ended September 2020. Operating income rose 22.6% from the year-ago value to $23.46 million. Adjusted EBITDA grew 48.3% from the prior-year quarter to $105.60 million, while gross profit increased 49.1% year-over-year to $60.20 million in the third quarter.
The consensus EPS estimate for the next quarter ending March 2021 indicates a 72.7% improvement from the year-ago value. The consensus revenue estimate of $273.44 billion for the next quarter indicates 54.3% growth from the same period last year. The stock has gained 70.4% year-to-date.
GDS’s promising outlook is reflected in its POWR Ratings. It is rated “Buy” with an “A” for Trade Grade, and a “B” for Buy & Hold Grade, Peer Grade, and Industry Rank. It is ranked #20 out of 115 stocks in the same industry.
Bilibili Inc. (BILI)
BILI is an online entertainment services platform in China, that covers a wide range of genres and media formats like live broadcasting, videos, and mobile games. The company has a strategic agreement with Tencent Holdings Limited (TME) for operating additional anime and games on its platform.
BILI has recently entered into a definitive agreement to acquire 3.47 million shares of Huanxi Media Group Limited. This strategic partnership will allow BILI to broaden and diversify its content to appeal to a wider audience and thereby, support its future growth.
BILI’s net revenue increased 74% year-over-year to $475.10 million in the third quarter ended September 2020. Gross profit increased 117% from the year-ago value to $112.20 million. The company’s average monthly active users increased by 54% year-over-year to 197.2 million over this period.
The consensus EPS estimate for the next year indicates a 44.1% improvement from the year-ago value. The consensus revenue estimate of $2.49 billion for the next year indicates 44% growth from the same period last year. The stock has gained 214% year-to-date.
BILI’s strong fundamentals are reflected in its POWR Ratings. It has a “Strong Buy” rating with an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade, and a “B” for Industry Rank. It is ranked #19 in the China industry.
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PDD shares were trading at $142.67 per share on Friday morning, up $5.01 (+3.64%). Year-to-date, PDD has gained 277.23%, versus a 12.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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