Will the share buybacks boost the Pop Mart stock price?

Pop Mart stock price continued its freefall in Hong Kong on Friday, reaching a low of $150, its lowest level since April 17. It has plunged by over 55% from its highest level last year, erasing billions of dollars in value.

The Pop Mart stock price has slumped in the past few months, a trend that may continue in the foreseeable future as concerns about the fading Labubu craze continue.

Securities filings show that the company is now buying the dip, hoping that the stock will rebound in the coming months. The filings show that the company bought back 3.97 million shares worth about HK$599 million ($76 million).

The company has now made three stock purchases worth over HK$347 million in January, which helped push the stock higher during the month.

Pop Mart shares have plunged amid the rising concerns that the company’s business will face major headwinds as the Labubu craze fades. As such, while its annual revenue numbers were strong, analysts believe that it will be hard to replicate the success this year.

The recent results showed that Pop Mart made over RMB 37.1 billion, up by 184% from RMB 13 billion a year earlier. Its profit jumped by 293% to over RMB 13 billion.

However, the company’s inventories continued rising, which may put it at risk now that the Labubu craze is ending. Its inventories jumped to RMB 5.4 billion from RMB 1.5 billion a year earlier.

Rising inventories is usually risky for a stock because it often means that products are not moving. It may also lead to lower profit margins in the future as the company slashes prices to boost sales.

These concerns likely explain why many investors are shorting the company. Its short interest has jumped to 16.8% of the free float, its highest point since 2022.

Many analysts have slashed their estimates, with analysts at Morgan Stanley slashing the earnings estimates by 15% to HK$278. Other analysts from companies like Benchmark and Bernstein have also slashed their estimates for the year.

Pop Mart stock | Source: TradingView

The daily timeframe chart shows that the Pop Mart share price has plunged from a high of $340 in August last year to a low of $150. After rebounding to $273 in February, it resumed the downtrend to the current level.

Pop Mart stock has now slumped below the important support level at $174, its lowest level in January this year. Moving below that level is important as it is a sign that bears have prevailed.

The stock has dropped below moving averages and the Supertrend indicator. Also, the Relative Strength Index (RSI) and the MACD indicators have continued falling this month.

Therefore, the stock will likely continue falling in the near term, potentially to the psychological level at $100. On the flip side, a move above the key resistance level at $174 will invalidate the bearish outlook.