PDD Holdings, owner of Pinduoduo and Temu, saw a 13.6% stock drop this week due to disappointing third-quarter earnings. While revenue continues to grow, profit margins are shrinking due to rising competition in China and the US. The stock looks cheap with a P/E ratio below 12, but caution is advised due to market volatility.

The company’s revenue growth has slowed, with revenue up 9% year-over-year to $15.2 billion last quarter, a significant drop from previous growth rates. Rising competition is forcing PDD Holdings to increase spending on marketing and merchant benefits, impacting profit margins. Operating profit grew just 3% year-over-year, with a slip in the operating margin.

Despite the recent stock drop, PDD Holdings’ P/E ratio has fallen below 12, making it appear undervalued compared to the S&P 500 Index. However, as a primarily China-based company, the market is highly competitive and volatile, making it risky for investors. Caution is advised before investing in PDD Holdings stock.

The Motley Fool Stock Advisor team did not list PDD Holdings among their top 10 best stocks to buy now. Their previous recommendations have seen significant returns, outperforming the S&P 500. Investors should consider the risks and potential rewards before investing $1,000 in PDD Holdings stock.

Read more at Nasdaq: Why PDD Holdings Stock Slipped 13.6% This Week