To The Moon

This young e-commerce company has bright prospects.

2022 has been a challenging year for U.S.-listed Chinese companies. The delisting threat, complex geopolitical environment sent these stocks down over the last few months.

Yet Pinduoduo (PDD)-- a leading Chinese e-commerce company -- pushed against this trend as the stock is up almost 25% year to date. There are two likely reasons that have driven this exceptional performance.

Pinduoduo has been executing extraordinarily well

Pinduoduo was an outlier in the Chinese e-commerce industry. Founded in 2015, it quickly became the second-largeste-commerce companyin China with 882 million active buyers as of March 31 --Alibaba Group was the largest with 903 million buyers.

The company grew quarterly revenue from zero to 31.4 billion yuan ($4.7 billion) in less than seven years. And in the second quarter, revenue advanced 36% year over year. Excluding merchandise sales, revenue rose even more, up 49%. That's a remarkable performance if you consider Alibaba reported flat revenue, while JD.com grew revenue just 5% in the latest quarter.

Besides growing its top line, Pinduoduo also improved its profitability in the quarter as operating profit surged 335% to 8.7 billion yuan ($1.3 billion). A growing top line and higher margin contributed to the growth of the bottom line.

Pinduoduo's latest performance assures investors that it is a significant player in the Chinese e-commerce market and one with staying power. It also further reduces any concern about whether Chen Lei, the CEO (and chairman), could deliver after taking overthe leadership role in July 2020. So far, Chen has done a good job scaling Pinduoduo's business over the last two years.

In short, Pinduoduo has proven it is a force to be reckoned with in the Chinese e-commerce industry, despite its young age.

U.S. and Chinese officials signed a new audit deal

Historically, it has been difficult for U.S. regulators to access complete audit information of U.S.-listed Chinese companies. To address this issue, the U.S. passed the Holding Foreign Companies Accountable Act in 2020, forcing the SEC to take stern action -- such as delisting -- against non-compliant companies. Understandably, investors fled U.S.-listed Chinese stocks altogether.

On Aug. 26, the China Securities Regulatory Commission and U.S. Public Company Accounting Oversight Board reached a landmark agreement for cooperation on audit paper inspection, allowing U.S. regulators to inspect the auditors of U.S.-listed Chinese companies.

The agreement is a huge step forward since it indicates both are willing to work together to resolve this challenge. For investors, this development significantly reduces the delisting risks that impacted companies face, potentially leading to a revaluation of Chinese stocks.

A leading e-commerce platform in China, Pinduoduo was a natural choice for many fund managers seeking exposure to this industry abroad. If this agreement holds, fund managers may look for opportunities among Chinese companies once again, including Pinduoduo.

Until then, it will be safer for investors to watch from the sidelines.

Source: The Motley Fool

$Pinduoduo Inc.(PDD)$