#TradFi交易分享挑战 Why is PDD, with a PE below 9, still falling?

PE below 9 times, why is it still dropping?
Pinduoduo released its Q1 financial report, and the stock opened with an immediate 11% plunge. From $96.64 straight down to $85.91, with an intraday low of $83.61, hitting a 52-week low. The market cap evaporated over $15 billion in one day. Many people glance at the PE—8.67 times—and think it’s super cheap. But the stock price just doesn’t show respect, falling from a 52-week high of $139 down to now $85, nearly a 40% drop.
So here’s the question: with such a low PE, why is it still falling? To answer in one sentence: a low PE is because E (earnings) is collapsing, not because P (price) is undervalued. The PE you see—8.67 times—is calculated by dividing the current price by past profits. But the market doesn’t look at the past; it looks at: will profits continue to decline next year? If the answer is "yes," then PE will only keep rising. What exactly did today’s financial report say?
Core data for Q1 2026:
 Revenue of 106.2 billion yuan, +11% YoY, missed expectations by 2.4 billion
 Net profit of 12.5 billion yuan, -15% YoY
 Advertising revenue of 49.9 billion yuan, growth only 2.5%
 Transaction service revenue of 56.3 billion yuan, 20% growth, first surpassing advertising as the largest revenue source
At first glance, it seems okay? Revenue is still growing, operating profit is up 22% YoY. But what about the details? Looking at five consecutive quarters’ trends reveals the real concern.
Listing the data for the last five quarters: advertising revenue growth: 15% → 13% → 8% → 5% → 2.5%. Continuous deceleration over five quarters, approaching zero growth. This is Pinduoduo’s most profitable business, and the slowdown toward zero indicates the profit engine is stalling.
Net profit trend (billion yuan): 14.7 → 30.8 → 29.3 → 24.5 → 12.5. Q1 is seasonally low, no doubt, but compared to the same period last year, it’s still declining, and net profit margin has dropped from 29.6% in Q2 last year to 11.8% now.
Net profit margin trend: 15.4% → 29.6% → 27.1% → 19.8% → 11.8%, steadily decreasing.

Why are profits collapsing?
Three forces are pushing down:
First, advertising business is slowing down. Merchants’ willingness to advertise is weakening. Fierce domestic competition, refund policies squeezing margins, plus macro consumption weakness. Advertising is pure profit; if it doesn’t grow, overall profits can’t hold up.
Second, revenue structure is shifting toward lower-margin areas. Transaction services (commission + fulfillment) now account for 53%, surpassing advertising. But this segment has high costs and low gross margins. In other words, Pinduoduo’s earnings are becoming increasingly "thin."
Third, management is actively burning cash. Last year’s "trillion-yuan support"—reducing commissions, subsidizing merchants. This year, another 15 billion invested in launching the "New Pinduoduo" brand and self-operated stores, with a call for "100 billion in supply chain investment over three years."
These investments are all short-term costs, with returns expected only after three years. So, is a PE of 9 really cheap?
Let’s do a simple calculation: if future profits stabilize at 50 billion yuan annually (about $7 billion), and the current market cap is roughly $122 billion (after today’s plunge), the actual PE is about 17-18 times. If profits continue to decline to 40 billion yuan, PE would rise above 21 times.
The so-called 9 PE is based on past high profits. The market is pricing for the future. This is the classic "low PE trap": the PE you see—8.67 times—is based on past profits that were high. Profits are still falling, and future PE could be even higher. Revenue is still growing, but growth rate has dropped from 60% to 10%. With 420 billion yuan in cash on hand, it’s hard to believe it can be effectively converted into growth. So, can you buy? This isn’t just a valuation question; it’s a business model transformation judgment. You need to answer:
 1. Can the "trillion-yuan support" and "New Pinduoduo" generate excess returns within three years?
 2. Can advertising monetization stop declining?
 3. Does Temu still have growth potential under current tariff environments?
If you believe the answers to these three questions are "yes," then this might indeed be a bottom. But if you can’t answer, then it’s a sign this isn’t within your circle of competence. No matter how low the PE, if you don’t understand it, you just don’t understand.
Finally, the market often presents a temptation: a well-known good company suddenly becomes "very cheap." The most dangerous thought then is: "It’s so cheap, isn’t it stupid not to buy?" No. There are two reasons for cheapness—first, the market is wrong; second, the "cheapness" you see might be fake. Which one does PDD belong to? It depends on whether you have your own judgment about its profit trend over the next three years. If yes, then this could be an opportunity. If not, it’s just a numbers game. $PDD