The Consecutive Journeys to Entering The Economic Constructive Zone & The Compounder Zone — PDD Case Study
Subject : The Consecutive Journeys to Entering The Economic Constructive Zone & The Compounder Zone — PDD Case Study
.
(A)
Economic Constructiveness
= X AND Y (Boolean Operation)
=
1
Then
GROWTHs (Gnet_income, Gtotal_assets, Ginvested_capital, Gtotal_equity) are “Economically Constructive” in their respective CICC and CTAC context.
=
0
Then
GROWTHs (Gnet_income, Gtotal_assets, Ginvested_capital, Gtotal_equity) are “Economically Destructive” in their respective CICC and CTAC context.
.
.
(A1)
NetROIC’s Boolean Operand X (For Growth Comparison in CICC Context)
= 1, if NetROIC > CICC
= 0, if NetROIC < CICC
.
(A2)
ROA’s Boolean Operand X (For Growth Comparison in CTAC Context)
= 1, if ROA > CTAC
= 0, if ROA < CTAC
.
(A3)
Gnet_income’s Boolean Operand Y
= 1, if Gnet_income > CICC
= 0, if Gnet_income < CICC
.
(A4)
Gtotal_assets’s Boolean Operand Y
= 1, if Gtotal_assets > CTAC
= 0, if Gtotal_assets < CTAC
.
(A5)
Ginvested_capital’s Boolean Operand Y
= 1, if Ginvested_capital > CICC
= 0, if Ginvested_capital < CICC
.
(A6)
Gtotal_equity’s Boolean Operand Y
= 1, if Gtotal_equity > Inflation Rate
= 0, if Gtotal_equity < Inflation Rate
.
(B)
B/S Structure Growth Criteria Test : Good Quality
Gtotal_equity > Gtotal_assets > Gtotal_liabilities
: Part B of the “SUPERB PRODUCTIVE BALANCE SHEET STRUCTURE OF CAPITAL ASSETS LIGHT BUSINESS MODEL” depicted in the reference below.
.
(C)
Reference :
.
(D)
Gnetroic
= (1 + Gnet_income Ratio) ÷ (1 + Ginvested_capital Ratio)
≥ 1, Netroic is sustaining or growing, operational efficiency and profitability rises.
.
(E)
Groa
= (1 + Gnet_income Ratio) ÷ (1 + Gtotal_assets Ratio)
≥ 1, ROA is sustaining or growing, operational efficiency and profitability rises.
.
(F)
Competitive Moat Advantage Degree
= NetROIC ÷ CICC
≥ 3, Superior
.
(G)
ROA Competitive Moat Advantage Degree
= ROA ÷ CTAC
≥ 1.5, Superior
.
(H)
Gintrinsic_value
= (1 + Gnet_income Ratio)² ÷ (1 + Ginvested_capital Ratio)
≥ 1, Gintrinsic_value is “Intrinsically Constructive”. Intrinsic Value is sustaining or growing.
.
:: Wrapping up ::
: Journey of a compounder :
.
Simultaneously
Breaking Door 1 (NetROIC > CICC Firstly, or Gnet_income > CICC Firstly)
+
Breaking Door 2 ( Gnet_income > CICC Secondly, or NetROIC > CICC Secondly)
=
The Economic Constructive Zone
Then,
Breaking Door 3 (Gintrinsic_value > 1)
=
The Compounder Zone
.
A firm needs to break through the 3 Doors to enter the Compounder (GIntrinsic_Value) Zone.
.
Notes:
(I)
Clean Invested Capital Cost (CICC) Factor
= Inflation Factor × (1 + D/E × (1 + 2 × Bond Yield Ratio)) ÷ (1 + D/E)
.
CICC
= 100 × (CICC Factor - 1)
.
(II)
Clean Total Assets Cost (CTAC) Factor
= Inflation Factor × (1 + Total Liabilities/Total Equity × (1 + 2 × Bond Yield Ratio)) ÷ (1 + Total Liabilities/Total Equity)
.
CTAC
= 100 × (CTAC Factor - 1)
.
Inflation Factor
= Inflation Ratio + 1
.
(III)
Bond Rate could be used to replace Inflation Rate if their difference are small.
.
(IV)
But For Latin America, the gap between Inflation Rate and Bond Rate could be significantly large. So the Bond Rate could not be used to replace Inflation Rate.
.
Case Study:
PDD
(A)
To Entering The Economic Constructive Zone:
Gnet_income (%) is Required to be
> CICC
> 5.11587169 %
.
(B)
To Entering The Compounder Zone:
Gnet_income Required > 100 × √(1 + Ginvested_capital Ratio) - 1
Gnet_income Required > 100(√(1+0.2974979577)-1)
Gnet_income Required > 13.9077678519 %
.
Would PDD able to achieve Gnet_income ≥ 13.9077678519 % in FY2026 or FY2027 ?
.
Forecasted Gnet_income FY2026 by:
Simpliwallstreet : 14.97807712 %
MarketBeat : 14.66 %
Alphaspread : 20 %
ValueinvestingIO : 17 %
Marketscreener : 13.22 %
.
Geometric Mean of Forecasted Gnet_income FY2026
= (14.97807712×14.66×20×17×13.22)^(1÷5)
= 15.8073868201 %
.
By GARP’s PEG = 1,
Forecast P/E (GARP PEG1) FY2026
= 15.8073868201
.
Note :
When a Business is entering mature phase from expansion growth phase, both the Gnet_income Ginvested_capital would be lower, balance out each other.
.
If a business which is entering mature phase (Ginvested_capital lower) but still able to penetrate and eat the rivals’ market share, the associated Gnet_income achieved would then be higher.
Its all about the competive moat advantage degree.
Example is the Byte Dance.
.
PDD is currently having High Degree of Competive Moat Advantage and has entered The Economic Constructive Zone.
.
Innovative Market and Operation Strategies combined with High Incremental Invested capital are the path to reentering Expansion Growth Phase. This is the current situation of PDD.
.
Ascending in GMV, the most downloadable E-Commerce App ranking, the most visit ranking, the improvement of Parent Satisfaction on Custoner Services and the Product Branding by new subsidiary NewPinMu, bode well for Temu.