If you’re hesitant to buy stocks while broader stock markets are close to all-time highs, perhaps consider buying stocks abroad. At this juncture, Chinese stocks are becoming a temptation from a valuation perspective.
Some Chinese internet giants are fresh off one of their worst multi-year spills in recent memory. And though the names may not be timely, it’s tough to pass some bruised stocks, if you seek deep discounts on firms that are capable of high double-digit percentage growth over time.
Of course, investing in Chinese stocks has been mostly a money-losing endeavor. And there’s a good chance it could continue to be as China’s economy battles through remaining headwinds. However, let’s examine three high-growth Chinese stocks that risk-takers may wish to watch if they seek massive undervaluation.
Alibaba (BABA)
Recently, internet juggernaut Alibaba (NASDAQ:BABA) announced its intention to raise $4.5 billion via convertible bonds to buy back shares. Undoubtedly, BABA stock looks incredibly undervalued after shedding 74% of its value from its brief 2020 peak.
Though the Chinese internet giant has a number of high-growth businesses to help power its comeback, I do think buybacks are a priority while BABA stock is still at multi-year depths. After all, buybacks are simply fantastic at times of severe undervaluation. Even as Alibaba goes big on the buybacks, don’t expect the firm to shy away from AI spending.
And, Alibaba’s commerce businesses are largely dependent on the state of the Chinese economy (it’s not in a good place these days). But, it has a footing in the AI race and the cloud, which are expanding. And while buybacks thrown in, count me as a big fan of BABA stock, even if shares are bound to stay grounded for a few more quarters.
PDD Holdings (PDD)
Formerly Pinduoduo, PDD Holdings (NASDAQ:PDD) has made great progress in recent years. It climbed back from its epic 2021 crash that wiped out close to 84% in market value in just over a year’s time. Global e-commerce sensation Temu is a household name outside of China. And it could expand its presence and offerings further.
The e-commerce company is known for retailing cheap goods, some of which gained significant attention on social media. It has played an important role in PDD stock’s comeback. The shares have gained 365% since the lows of 2022. At this pace, the company is nothing short of intriguing while it’s going for 19.5 times trailing price-to-earnings (P/E).
With a sensational first quarter that saw revenue grow 131% year-over-year (YOY), the magnitude of PDD’s growth is becoming difficult to ignore. I think there’s more such growth ahead, even if the multiple suggests PDD is more of a value play.
Luckin Coffee (LKNCY)
Luckin Coffee (OTCMKTS:LKNCY) is more speculative for investors betting on China’s newfound taste for coffee. The coffee chain is expanding across the nation at a scorching rate as it clashes with the likes of Seattle-based coffee firm Starbucks (NASDAQ:SBUX).
Indeed, Luckin Coffee has encountered snags in the past, as it ran into trouble with its debt load. Lately, the situation has improved greatly. Management is finding ways to grow sales without heavily weighing down the balance sheet. Moving ahead, it will be interesting to see how the Chinese chain competes with Starbucks and other national rivals amid China’s economic slide.
Either way, coffee chains could be in for big gains as they hit the gas on their unit expansion plans. While such store growth could eat away at margins, it’s the long-term narrative that’s most worthy of investment.
At writing, shares are fresh off a 50% plunge from 52-week highs near $38 per share. At 14.7 times trailing P/E, LKNCY definitely looks like a deep value play. However, one that entails a great degree of risk as China continues navigating a horrid economic climate.
On the date of publication, Joey Frenette owns shares of Starbucks. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
