PDD Holdings: I Wouldn't Be A Buyer Here

The e-commerce sector has long been a magnet for investors seeking high-growth opportunities, but PDD Holdings (PDD), the parent company of Temu, now faces a confluence of valuation risks and weakening growth momentum that warrants caution. While the company's aggressive expansion and low P/E ratio may appear attractive, a closer examination of its financials, sector dynamics, and regulatory environment reveals a compelling case against buying the stock.

Valuation Risks: A Discounted Stock with Diminishing Margins

PDD Holdings' current P/E ratio of 12.66–14.21, according to FullRatio, is significantly lower than both its 3-year (15.98) and 5-year (20.17) averages, as well as the e-commerce industry's 27.44 benchmark. On the surface, this suggests undervaluation. However, the company's profitability has deteriorated sharply. In Q2 2025, PDD reported a 21% year-over-year decline in operating profit to $3.6 billion and a 4% drop in net income to $4.293 billion, despite a modest 7% revenue increase to $114.5 billion, as detailed in its Q2 2025 results. These declines stem from heavy investments in merchant support initiatives and platform sustainability, which have eroded short-term margins, as the filing explains.

The disconnect between PDD's low P/E and its weakening margins raises a critical question: Is the stock truly undervalued, or is the market pricing in persistent profitability challenges? For context, Alibaba Group trades at a forward P/E of 11.91x, according to a Finviz analysis, while Amazon (AMZN), the U.S. e-commerce leader, dominates cloud computing with a 30% global market share and 13% revenue growth in Q2 2025 (FullRatio data). PDD's reliance on aggressive discounting-a strategy now under regulatory scrutiny-further complicates its ability to sustain margins in a competitive landscape.

Historical data shows that when PDD misses earnings expectations, the stock experiences significant declines. For example, in Q3 2022, a slight revenue miss led to a premarket correction, and the stock's overall trajectory from that period to the present has been largely negative, as noted in FullRatio's historical analysis.

Weakening Growth Momentum: Saturation and Strategic Shifts

PDD's explosive growth, fueled by its "team purchase" model and global expansion via Temu, has slowed. While the company achieved 24% year-over-year revenue growth in Q4 2024 (Finviz notes), its Q2 2025 results reflect a return to more modest gains. This aligns with broader sector trends: according to a report by Channel News Asia, China's e-commerce market is projected to reach $1.38 trillion in 2025 and is expected to grow at a decelerating CAGR of 7.41–11.30% through 2030–2035. As the market matures, PDD faces intensifying competition from Alibaba and JD.com, both of which are doubling down on discounts and AI-driven strategies (Finviz coverage).

Alibaba's recent $53 billion investment in AI and cloud infrastructure over three years underscores its long-term positioning in the AI-driven e-commerce space, a domain where PDD lacks comparable depth. Meanwhile, Amazon's exit from China and focus on the U.S. market highlight divergent regional strategies, but PDD's global ambitions via Temu are now constrained by regulatory headwinds.

Sector-Wide Challenges: Regulation and Operational Constraints

The China e-commerce sector is undergoing a regulatory reckoning. In July 2025, the government mandated that platforms like PDD discontinue "refund without return" policies, granting merchants exclusive authority to manage refunds, a policy detailed by Channel News Asia. This shift, aimed at curbing "involution-style" competition, directly impacts PDD's customer service model, which relies on streamlined dispute resolution to maintain user satisfaction. The policy follows public protests, including a 2024 demonstration at a PDD office, and reflects broader efforts to address monopolistic practices and data privacy concerns, as the Channel News Asia report explains.

These regulatory changes force PDD to reassess its operational playbook. While the company's balance sheet remains robust-with substantial cash reserves and profitability-it must now navigate a more complex compliance landscape. Smaller players and new entrants face additional hurdles, including high customer acquisition costs and data localization laws, further consolidating the market in favor of established giants like Alibaba and JD.com.

Conclusion: A Risky Proposition in a Slowing Sector

PDD Holdings' low P/E ratio may tempt value investors, but the company's declining margins, regulatory pressures, and a maturing e-commerce sector paint a cautionary picture. While its global expansion via Temu has been a success, the sustainability of its growth model is now in question. In a market where Alibaba and Amazon are investing heavily in AI and cloud infrastructure, PDD's reliance on discount-driven strategies appears increasingly vulnerable. For investors, the combination of valuation risks and sector-wide headwinds makes PDD Holdings a stock to avoid-unless the company can demonstrate a clear path to restoring profitability without sacrificing long-term innovation.