Chinese stocks don’t always have the best reputation among American traders. While these businesses can often hold sound theses and financials, the wildcard of potential government intervention or macroeconomic concerns can easily throw off your entire investment rationale. Risks mount up compared to other foreign companies With so much uncertainty, undervalued Chinese stocks are considered riskier trades.
Over the past few years, Chinese stocks have been decimated. A regulatory crackdown by the CCP in November 2020 sent shockwaves through the industry. Stocks like Alibaba have fallen by 50% over the past five years, shedding hundreds of billions of dollars from their market cap. But at a certain point, these beaten-down companies become tremendous discounted opportunities. Here are three undervalued Chinese stocks to buy now for a bounce back.
Alibaba (BABA)
Alibaba (NYSE:BABA) is the eighth-largest Chinese company in market capitalization and is a pioneer in the eCommerce and digital payments sectors. Wall Street analysts are certainly forecasting a rebound for Alibaba. In May, 47 of 48 recommendations were a Buy or Strong Buy rating, and the average price target of $109.49 represented a nearly 40% upside from the current price.
As mentioned, the stock has been down by roughly 50% over the past five years. Surprisingly, at that time, the company’s Alipay super app became the most widely used payment application in China, with over 660 million monthly active users. Alibaba’s operations of two of China’s largest eCommerce sites, Tmall and Taobao, have also been crucial for this company in expanding its addressable market and solidifying Alibaba’s market dominance.
Alibaba is an undervalued Chinese stock because it’s trading at historically low multiples. Shares of BABA trade at 1.5x sales and 9.3x forward earnings despite growing its revenue at a ten-year CAGR of 33%. With such a discounted price underlying great financials, Alibaba stock is an amazing candidate for a rebound and breakout in June.
JD.Com (JD)
JD.Com (NASDAQ:JD) is a Chinese e-commerce company focusing on the business-to-consumer or B2C industry. It is a direct competitor to Alibaba’s Tmall platform and, like Alibaba, holds a bullish outlook for Wall Street analysts. The average analyst price target is $43.33, which implies more than 40% upside, and the street-high target of $97.12 is more than three times its current price.
Last quarter, JD had a surprisingly good earnings report, and the stock rebounded. Revenue grew by 7.04% QOQ, and net income jumped by nearly 14.0%. Another area where JD is excelling? It’s now building up the largest network of drone and robotic delivery services. Their investments in AI and robotics and testing of autonomous delivery trucks have also been guided by management to be key growth driving areas.
Like Alibaba, you’re getting JD at a rock bottom price multiple. Shares trade at 0.3x sales and 8.9x forward earnings. This low multiple is also accompanied by a company that has grown its revenue at a CAGR of 30% over the past ten years and its five-year net income at a CAGR of 50%! Buying JD stock at these prices almost seems like a no-brainer.
PDD Holdings (PDD)
PDD Holdings (NASDAQ:PDD) is more known as the owner of eCommerce website PinDuoDuo. In May, 44 of the 45 analyst recommendations for PDD were a Buy or Strong Buy rating. The average analyst price target sits at $205.53, which is nearly 40% higher than today’s price.
This stock has fared better than Alibaba and JD over the past year. Shares of PDD have returned more than 120% over the past 52 weeks and more than 650% over the past five years. This growth is largely attributed to the launch of its Temu marketplace in more than 50 countries worldwide to take on Tmall and Amazon (NASDAQ:AMZN). Although it started as an agricultural marketplace, PDD’s platforms now sell nearly anything you can think of!
Despite increasing its revenue at a ten-year CAGR of 67%, shares are trading at lower multiples than ever before. Shares of PDD trade at 5.2x sales and 12.9x forward earnings. But the impressive thing about PDD is its 62% gross margins, nearly double the industry average of 32.5%! With such healthy financials, it would be foolish not to scoop up shares in this undervalued Chinese company.
On the date of publication, Ian Hartana and Vayun Chugh did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
