Dada Nexus: Evaluating Q3 2023 Financial Results and Undervalued Stock

Small Caps 0 replies 0 votes 1574 views Tags:  brand buildingbrand campaignscatalystsChinese on-demand retailDada NexusDADA stockearningsfinancial resultsHold ratingmarket expectationsprofitabilityQ3 2023revenue growthvaluation
Brown girl 7 months

Dada Nexus Limited (NASDAQ:DADA) is currently at an interesting crossroads. The company is expected to release its Q3 2023 financial results soon, and while the market's valuations of DADA are appealing, there seems to be a lack of near-term catalysts for the stock. 
Dada Nexus, which operates in China's on-demand retail sector, is predicted to announce its Q3 financial results in mid-November. Analysts anticipate that these results might not be as strong as the company's Q2 performance. The consensus estimates suggest a +20.5% YoY increase in revenue for Q3 2023 compared to the same period last year. However, this growth rate is slower than in previous quarters, which saw more robust increases in revenue. Additionally, DADA might experience a return to losses in Q3 2023, reversing the positive adjusted net income it reported in Q2.
Two key factors could contribute to this potential Q3 downturn. Firstly, DADA may have incurred higher rider costs due to extreme weather conditions in China during the summer, leading to increased subsidies for riders. Secondly, the company has been investing in specific brand building campaigns and projects to boost sales for brands on its platform, which could have increased selling and marketing expenses.
I predict that DADA's Q3 performance is likely to be in line with these expectations. This means that the upcoming Q3 earnings announcement may not be a significant catalyst for the stock's re-rating, despite its attractive valuations.
DADA's stock price has dropped significantly in 2023, making it appear undervalued. It is currently trading at a price-to-sales ratio of 0.61, and with a healthy estimated revenue growth rate, it could trade closer to a 1x price-to-revenue ratio in the future. Furthermore, if DADA can improve its profitability over time, it might achieve a normalized P/E multiple of just 6.7 times by FY 2025.
In conclusion, while Dada Nexus' shares seem cheap based on valuations, I believe that the upcoming Q3 results announcement might not be the catalyst investors are waiting for. Therefore, I suggest maintaining a Hold rating for DADA.

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