Pop Mart share price forms a rare bearish pattern, as Labubu craze fades
Pop Mart share price crashed and formed a bearish flag pattern as the hype surrounding the Labubu collectible faded. It also plunged as analysts turned sour on the company after it tripled in the past few months. This article explores whether the stock is a good buy today.
Why the Pop Mart share price has plunged
Pop Mart stock jumped by over 6% and then pared back some of the losses after Tim Cook, Apple’s CEO, visited one of its stores in China. In a social media post, he noted that he was proud to see a senior designer using its iPad.
Cook’s visit rekindled the interest of the company from investors. It also led some analysts to start thinking of a potential collaboration between the two companies, although no details on this have been shared. Such a collaboration would be good for the company because of the popularity of Apple’s products.
The visit came as analysts turned sour on the Pop Mart share price. In a recent note, JPMorgan analysts slashed their target from H$400 to H$300, citing its elevated valuation and the fact that the Labubu craze was running out of steam.
The most recent data shows that the company has a trailing price-to-earnings (P/E) ratio of 46 and a forward multiple of 25, higher than comparable companies. It is also higher than the Hang Seng Index average.
Sales growth to decelerate
The most recent results showed that the Labubu craze helped the company achieve strong results.
Its numbers showed that its revenue jumped by 204% to RMB 13 billion in the first six months of the year. This growth made it the fastest-growing company in the Hang Seng Index and in China. Its growth momentum was also much higher than that of companies in industries like artificial intelligence and quantum computing.
Pop Mart’s results showed that its operating profit rose by 234% to RMB 9.7 billion, while the net profit soared by 385% to RMB 4.57 billion. The soaring Labubu sales also helped to boost its gross and net profit margin to 70.3% and 33.7%.
In addition to its Labubu product, the company benefited from its other products, especially Molly, SkullPanda, Cry Baby, Hirono, and Dimoo. Its growth was also because of its store openings globally. It added 41 new stores, bringing the total to 571 stores across 18 countries.
Read more: Pop Mart shares fall on China’s blind-box alert, but analysts see global growth ahead
Pop Mart stock price analysis
Pop Mart stock chart | Source: TradingView
The daily timeframe chart shows that the Pop Mart share price peaked at $339 in September, much higher than the year-to-date low of $79.95. It has recently moved below the 50-day moving average, sign that the stock was losing momentum.
Pop Mart share price is now forming a bearish flag pattern, which is made up of a vertical line and a channel. This pattern often leads to more downside over time.
Therefore, the most likely scenario is where the stock makes a bearish breakout and hits the psychological point at $200, which is about 25% below the current level.
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