Pinduoduo's underlying logic: Don't be fooled by underestimation, investment requires a three-dimensional view of the company

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When discussing Pinduoduo, we often see significant divergence among investors. Some believe its valuation is absurdly low, presenting a great bargain-hunting opportunity, while others are disappointed by its "self-inflicted cuts" in every earnings report and its lukewarm stock performance. Understanding Pinduoduo, at its core, means grasping a fundamental investment logic: don’t judge based solely on valuation; instead, analyze a company holistically and comprehensively, and avoid the impatience of "expecting immediate gains after buying."

Pinduoduo’s core logic: Don’t be fooled by undervaluation; investing requires a multidimensional view of companies. Pinduoduo’s most distinctive trait is the pragmatism ingrained in its management, even bordering on "anti-conventional wisdom." Those familiar with its financial reports can sense the influence of Huang Zheng’s corporate culture, which bears the mark of Duan Yongping—focusing solely on the business itself, never obsessing over market cap management, and certainly not painting rosy pictures or hyping expectations like some companies. While other listed companies strive to make their performance look impressive, Pinduoduo not only sticks to facts but even sets expectations slightly lower than reality, proactively highlighting risks. Many see this as "self-sabotage" or joke that management "doesn’t want to be the richest," but this misses the bigger picture: they pour all their energy into execution rather than pandering to market sentiment. Compared to companies like Alibaba, which love to paint grand visions, Pinduoduo’s pragmatism is hard for investors accustomed to storytelling to accept—yet this is precisely its most authentic quality.

Looking at Pinduoduo’s business, it operates on two fronts: domestic and overseas, with clear distinctions between the current state and expectations for each. Domestically, Pinduoduo’s main platform is in the fiercely competitive e-commerce red ocean, where slowing growth is inevitable due to the industry’s saturation. The real growth potential lies overseas, particularly in the U.S. market. While it ranks in the top three in regions like Southeast Asia, South America, and Europe, it still lags behind local giants like Shopee and MercadoLibre in terms of customer recognition and brand strength—making these markets more of a "second-best" strategy. Still, the overseas business is just getting started, with clear growth potential, and crucially, it’s already turning profitable—a tangible sign of progress.

On valuation alone, Pinduoduo is undeniably attractive, trading at around 7x after adjusting for cash flow—a clear undervaluation. This has lured many investors with a Graham-style "cigar butt" approach, expecting a quick rebound after buying a cheap stock. But they overlook one critical point: undervaluation doesn’t guarantee a rise. Graham himself went bankrupt following this logic because market sentiment shifts can render pure "low-valuation strategies" ineffective. The market never undervalues a company without reason—it’s either due to flaws in the business model or doubts about growth potential. Pinduoduo’s low valuation is tied to the cutthroat competition in its domestic market and the uncertainties of its overseas expansion. Buffett and Munger learned this lesson and shifted from "buying cheap" to "buying great"—identifying companies with moats and strong business models to hold long-term. This is the more sustainable investment logic: buying stocks is, at its core, buying businesses, not just cold valuation numbers.

Unfortunately, many investors still make this mistake: they rush into undervalued stocks hoping for a quick rebound, only to panic when the price doesn’t move. Even if a stock is deeply undervalued, value realization takes time, supported by business fundamentals and market narratives. In the short term, the market is a voting machine; only in the long term is it a weighing machine. Pinduoduo’s undervaluation is like a mirror, reflecting the impatience of many investors: they expect immediate gains, fret over losses, sell at breakeven, and regret missing out on rallies. What they fail to realize is that the biggest pitfall in investing is the "blind men and the elephant" fallacy—judging based on a single metric like valuation, seeing things in black and white while ignoring the bigger picture.

Truly understanding a company is never about looking at just one dimension; it requires multidimensional analysis—corporate culture, business model, and growth potential are all indispensable.
Corporate culture determines how a company operates. Pinduoduo’s pragmatism means it won’t sacrifice long-term growth for short-term stock performance, but it also lacks the "storytelling" appeal that markets love—a double-edged sword.
The business model defines the moat and the difficulty of making money. E-commerce is an industry that demands relentless competition and internal struggle, unlike companies like Tencent that can profit effortlessly from traffic. If Pinduoduo’s founders stepped away for months, the business would suffer—this is inherent to its model and means it faces higher barriers to profitability.
Growth potential is the core support for valuation recovery. No matter how low the valuation, if there’s no growth—or worse, if the business is stuck in a red ocean with no breakout potential—the stock price won’t budge. The market only rises when more people buy, and investors won’t pay for mere "undervaluation"—only for "undervaluation with growth."

This is what I’ve always emphasized: investing isn’t a black-and-white science; it requires comprehensive consideration. Whether you’re buying undervalued stocks like Pinduoduo or high-growth sector plays, you must be mentally prepared for "no immediate gains." Set clear holding expectations: How long do you plan to hold? What’s the worst-case scenario for this company? Can you handle it? It’s like crossing a river—you need to know how deep it is. If you think it’s one meter but it’s actually two, you’ll drown if you can’t swim.

The common flaw among many investors is impatience—buying today and expecting gains tomorrow, completely forgetting the basic rules of investing. Like farmers planting rice: you sow in spring and harvest in fall. The growth of any company, the realization of any value, takes time and cycles. Short-term trading might seem like a way to make quick money—some even double their capital in a year—but over time, the probability of loss reaches 99%, leaving most as market casualties. Over five years, those chasing trends often underperform those patiently holding quality companies—this is the power of time and the essence of investing.

Understanding Pinduoduo is really about understanding our own investment mindset. Its undervaluation, its pragmatism, and its business realities are all tests for investors: Can you let go of impatience and view a company holistically? Can you resist the urge for instant gratification and give investments time?

There are no shortcuts in investing, no myths of "buying low and selling high immediately." It’s a step-by-step journey of understanding companies, understanding yourself, and understanding cycles. Instead of obsessing over short-term price movements, focus on deeply analyzing a company’s culture, business model, and growth logic. Only with this foundation can you hold with conviction. Like Pinduoduo’s management, focus on execution—time will provide the answers. In investing, focus on understanding companies—time will reward you accordingly.