Conservative Theoretical Mean Reversion P/E & Value : PDD Case Study
Subject :
Conservative Theoretical Mean Reversion P/E & Value: PDD Case Study
.
Over shot P/E tends to revert to the Conservative Geometric Mean of ROIC & CICC in the long run.
.
If a stock is mispriced and slashed down to Mean Reversion P/E, it is said to be conservative and undervalued, the higher is the Economic Spread (ROIC-CICC), the more undervalued the stock is.
.
(A)
Conservative Theoretical Mean Reversion P/E
= √(ROIC × CICC)
.
(B)
Conservative Theoretical Mean Reversion P/E Value
= √(ROIC × CICC) × EPS
.
Notes :
.
(I)
ROIC
= Net Income ÷ (Total Equity + Total Interest Bearing Borrowings)
.
(II)
CICC Factor ttm (applied to Invested Capital Case)
= Clean Invested Capital Cost Factor ttm
= 30Y Government Bond Yield Factor × ( 1 + D/E × (1 + 2 × 30Y Government Bond Yield Ratio) )÷ (1 + D/E)
.
CICC Ratio
= CICC Factor - 1
.
CICC
= 100 × CICC Ratio
.
— Case Study —
PDD
FY 2025
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Non-Gaap ROIC = 25.5305840264
CICC = 5.11587169
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(A)
Conservative Theoretical Mean Reversion P/E
= √(ROIC × CICC)
= √(25.5305840264×5.11587169)
= 11.4285253664
.
(B)
Conservative Theoretical Mean Reversion P/E Value
= √(ROIC × CICC) × Non-Gaap EPS
= √(25.5305840264×5.11587169) × 10.3507581966
= √(25.5305840264×5.11587169)×10.3507581966
= USD 118.293902611