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RLX Technology (RLX, Financials) shares fell 11.7% to $2.00 as of 12:49 p.m. GMT-4 on Monday after Citi downgraded the stock from Buy to Neutral and lowered its price target from $2.80 to $2.50 following the company's fourth-quarter earnings report.
With a non-GAAP net profit of RMB 246 million, RLX said it matched Citi's forecasts. Reflecting a 56% year-over-year growth and an 8% quarter-over-quarter gain, revenue came to RMB 813 million ($111.4 million). Supported in part by an early Chinese New Year boost to overseas commerce, the result beat analyst estimates of $794 million. Thanks to cost containment, non-GAAP operating profit climbed 48% year over year to RMB 113 million with an operating profit margin of 13.8%. With adjusted profits per share at $0.19, the estimate was $0.20 missing by $0.01.While non-GAAP net income improved marginally to RMB 934.0 million ($128.0 million) from RMB 903.9 million in 2023, net sales grew 73.3% year over year to RMB 2,748.6 million ($376.6 million). Rising from 23.7% the year before, the company's gross margin rose to 27.0%.Though RLX has a healthy financial situation with more cash than debt and liquid assets greater than short-term needs, the company might run across challenges. Particularly considering the industry's shift toward "Big Puff" items, Citi highlighted price constraints and regulatory hurdles as main worries. The broker also cautioned of a probable slowing down of global momentum in 2025. Although Citi is still wary, several analysts are nevertheless hopeful about the profitability prospects and sales increase of RLX.
This article first appeared on GuruFocus.