Technology stock

Why RLX Tech Stock Was Plunging Today

What happened

Shares of RLX Technology (RLX -36.33% ) fell sharply today after the Chinese vaping company released its fourth quarter results this morning. Ongoing tensions around vaping regulations in China and broader fears over Chinese equities appeared to be the main reasons for the selloff today.

As of 1:25 p.m. ET, the stock was down 36.8%.

Image source: Getty Images.

So what

On the surface, quarterly results were solid. Revenue increased 18% to $298.8 million. Gross margin slipped from 42.9% to 40.2% due to higher promotional costs such as markdowns and an increase in inventory write-down.

Adjusted net earnings increased 28% to $84.2 million, or $0.06 per share. Analyst estimates were not available for the quarter.

CEO Kate Wang said, “We are pleased with our operational and financial performance in the fourth quarter, ending 2021 on a strong note. Despite the changing regulatory framework for the industry and the difficult context of recurring COVID-19 outbreaks, we remained focused throughout the year on optimizing our distribution and retail channels, investing in scientific research, new product development and digitization upgrades.”

There was nothing in the earnings report that seemed to warrant a 37% drop. Instead, the stock’s plunge appears to reflect growing nervousness around Chinese stocks, as it was the second day in a row that the sector fell sharply, after the Securities and Exchange Commission (SEC) cited five stocks Chinese to be delisted by the end of the month. .

For example, the Kraneshares CSI China Internet ETFwhose main holdings are Tencent Holdings, Alibaba Holding Groupand JD.comwas down 8% in afternoon trading after falling 10% yesterday.

Now what

Chinese stocks have only become riskier in the minds of investors in recent days. The delisting of five stocks signals that more delistings of companies like RLX Technology may be in the works. Meanwhile, the war in Ukraine, which has decimated Russian stocks, has caused some to reconsider their exposure to China, especially as the geopolitical shift of the war could lead to increased tensions between the United States and China.

As a company, RLX may be doing well, but the stock is quickly becoming anathema after a successful IPO a year ago. The shares are now down 90% since its IPO.

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