Labubu-maker Pop Mart's shares extend slide as Morgan Stanley removes it from China focus list

Pop Mart shares are down over 13% this week after Morgan Stanley removed the stock from its China and Hong Kong focus list, despite having raised its price target earlier this month on expectations of long-term growth. The investment bank cited the stock's "lofty valuation" and questioned whether its recent outperformance could continue, even as Pop Mart's overseas sales have already surpassed its 2021 total sales, driven by the popularity of its "blind box" concept and the recent Labubu craze.

Analysis

Pop Mart's Hong Kong-listed shares registered a notable decline, falling over 5% on Friday and extending their weekly loss to more than 13%, marking the first negative week since early May despite year-to-date gains still exceeding 160%. The sell-off coincided with Morgan Stanley's removal of Pop Mart from its China and Hong Kong focus list, with PICC P&C taking its place, though specific reasons for the delisting were not detailed by the investment bank. This action contrasts with Morgan Stanley's June 10 report, which raised Pop Mart's price target to 302 HKD from 224 HKD, citing long-term growth prospects. However, the same report highlighted that the market had likely "fully factored in Pop Mart's exponential growth in 2025" and expressed reservations about its "lofty valuation," suggesting recent outperformance levels might not be sustainable. Pop Mart, fueled by its "blind box" model and the viral "Labubu" series, has achieved significant international expansion; its 2024 overseas sales have already surpassed its total 2021 revenue of 4.49 billion yuan, reaching 5.1 billion yuan (a 373% year-over-year increase), complemented by mainland China sales of 7.97 billion yuan. Nevertheless, external commentary, such as that from Jacob Cooke of WPIC Marketing + Technologies, suggests an element of luck in Pop Mart's success and points to the cyclical nature of collectible trends, while acknowledging the expanding adult toy market.

Key Decisions for Investors

• Given Pop Mart's substantial year-to-date share price appreciation followed by a significant pullback and Morgan Stanley's articulated concerns regarding its 'lofty valuation', investors should critically re-evaluate their positions and risk exposure.
• Investors ought to closely scrutinize upcoming sales figures, particularly looking for evidence of sustained momentum in overseas markets and the enduring appeal of key product lines like Labubu, to ascertain if the current valuation can be supported long-term.
• It is prudent for investors to consider the inherent cyclicality and potential 'fad' risk within the collectible toy sector, as highlighted by external commentary, when assessing the sustainability of Pop Mart's high-growth trajectory and international expansion.