Pinduoduo (PDD) stock spikes 18% following unexpected earnings windfall

• Pinduoduo stock jumps more than 18% at Monday open.
• Q2 earnings were much higher than the market had expected. 
• Chinese consumption appears to be returning according to CEO.

Pinduoduo (PDD) stock is up over 18% to $68 at the start of the week's trading on Monday. Investors in the regular session are even more excited about the ecommerce retailer's second quarter results than the premarket crowd. Pinduoduo's major windfall, an astounding 157% YoY EPS gain, pushed it up more than 8% in the premarket shortly after the results were released.

Earnings per American depository share came in at $1.13, outpacing Wall Street's forecast of $0.41. Revenue of $4.69 billion in Q2 also ran ahead of forecasts, this time by $1.25 billion. Revenue advanced 36% YoY.

Management said the largescale earnings figure was related to postponing certain corporate investments and the recovery of Chinese consumption after the covid-related shutdowns of the spring. 

“We saw a recovery in consumer sentiment in the second quarter, especially during the 618 shopping festival, a reflection of the resilience of overall consumption,” said CEO and Chairman Lei Chen.

News for the Chinese market has been positive of late. Last week the Chinese government also announced a series of stimulus measures to help the economy rebound in the face of setbacks in the real estate sector and due to a recent heat wave that has forced factories to close.

Another part of the enthusiasm is the Securities & Exchange Commission just announced a preliminary agreement between itself and Chinese regulators that would allow SEC regulators to see internal company audits. Until now these were not allowed to be shown to foreign governments, which had made the possibility of Chinese firms being delisted a major worry. Now more US investors are once again taking a shine to Chinese equities, and Pinduoduo was a popular choice before Beijing's tech crackdown led to share prices getting slammed.

Pinduoduo stock forecast

Maybe the rally was pre-ordained back on August 8. That is when the 50-day moving average crossed above the 200-day moving average. This is known as a Golden Cross pattern and typically forecasts a sustained rally.

Support now sits at the 50-day moving average near $55.31. Monday's spike places PDD stock above the June 27 range high of $68.71. Bulls need to push Pinduoduo stock above the $71.27 high from January 20. Otherwise that price level will become sticky resistance. After that bulls will pinpoint the gap down on November 26, 2021. To do so, they need to retouch $79.06, the low from the prior session.

PDD daily stock chart