DiDi Global: A High-Conviction Buy Before the Hong Kong IPO?

The investment landscape for DiDi Global (OTCPK:DIDI.Y) has entered a pivotal phase as the company navigates its path toward a potential Hong Kong IPO in 2025. With a compelling mix of valuation dislocation and accelerating earnings momentum, DiDi presents a high-conviction opportunity for investors willing to bet on its long-term strategic repositioning. This analysis evaluates the company's financial performance, valuation metrics, and market dynamics to determine whether the stock is undervalued ahead of its anticipated listing.

Earnings Momentum: A Turnaround in Progress

DiDi Global's Q3 2025 results underscore a significant improvement in profitability. The company reported revenue of ¥58.6 billion, reflecting an 8.7% year-over-year increase, while net income surged 67% to ¥1.5 billion, driven by disciplined cost controls and margin stabilization. Earnings per share (EPS) rose to ¥1.05, outpacing the ¥0.75 recorded in Q3 2024. Adjusted EBITDA reached ¥1.6 billion, though adjusted EBITA declined 47% year-over-year, highlighting lingering operational challenges.

Notably, DiDi's trailing twelve-month net losses have shrunk by 54.2% over five years, signaling a maturing business model. This progress aligns with broader trends in the ride-hailing sector, where companies are shifting from aggressive expansion to sustainable profitability. Analysts project 57.03% annual earnings growth over the next three years, a figure that, if realized, would cement DiDi's transition from a high-risk tech play to a cash-flow generator.

Valuation Dislocation: A Discounted Opportunity

Despite these gains, DiDi's valuation remains strikingly low. The stock trades at a 0.8x price-to-sales (P/S) ratio, well below the US transportation industry's average of 1x and its peer group's 3.1x. This discount reflects market skepticism about the company's ability to sustain profitability, but it also creates a compelling entry point for value-oriented investors.

Discounted cash flow (DCF) models further highlight the dislocation. Simply Wall St estimates DiDi's intrinsic value at $19.46 per share, a 267% premium to its current price of $5.28. Conversely, Alpha Spread's DCF model suggests an intrinsic value of $2.24, implying overvaluation. The disparity stems from divergent assumptions about DiDi's future cash flows, with bullish models factoring in margin expansion in China and international growth.

Forward P/E ratios also paint a mixed picture. Yahoo Finance lists a forward P/E of 11.45, while finbox.com and GuruFocus.com report 24.5x and 24.89x, respectively. These fluctuations reflect uncertainty about DiDi's earnings trajectory but also underscore the stock's potential for re-rating as the company approaches profitability. Analysts have set a consensus price target of $7.85, implying a 48.55% upside from current levels.

Hong Kong IPO: A Strategic Catalyst

The potential Hong Kong IPO adds another layer of intrigue. DiDi has not yet disclosed a timeline, but its Q3 net income of ¥2.357 billion-a 195% increase from Q2 2024-strengthens its case for a successful listing. Hong Kong's IPO market, which raised record capital in 2025, through A+H dual listings, offers a favorable environment for DiDi's reentry into public markets.

The company's U.S. listing in 2021 was marred by regulatory scrutiny, including a $740 million settlement for IPO mishandling and a $1.2 billion fine from Chinese regulators. A Hong Kong listing would mitigate geopolitical risks while leveraging the city's growing appeal for Chinese tech firms. Theoria Capital's bullish projection of ¥500B–¥800B in value by 2029, based on cash flow assumptions, further reinforces the IPO's potential as a catalyst.

Risks and Considerations

Investors must weigh these positives against key risks. DiDi's revenue growth of 8.9% annually lags behind the 10.5% expected for the broader US market, raising questions about its ability to outperform peers. Additionally, the conflicting DCF valuations highlight uncertainty in modeling DiDi's future cash flows, particularly in a competitive ride-hailing sector. Regulatory risks in China and the absence of a clear IPO timeline add further volatility.

Conclusion: A High-Conviction Case

DiDi Global's valuation dislocation and earnings momentum present a compelling case for a high-conviction buy. At a P/S ratio of 0.8x and a DCF fair value of $19.46, the stock appears significantly undervalued relative to its fundamentals and industry peers. The potential Hong Kong IPO, coupled with improving profitability and a favorable market environment, could act as a catalyst for re-rating. While risks remain, the combination of discounted valuation and strategic momentum makes DiDi a standout opportunity for investors with a medium-term horizon.