Pop Mart International Group Faces Downgrade Amid Valuation Scrutiny

Pop Mart Shares Decline Following JPMorgan Downgrade

Pop Mart International Group Limited (9992.HK), the Chinese toymaker renowned for its collectible figures, experienced a notable decline in its stock price following a downgrade from JPMorgan. The investment bank shifted its rating on Pop Mart from Overweight to Neutral and reduced its price target from HK$400 to HK$300. This adjustment comes after a period of significant gains for the stock, which had surged 184% year-to-date and 427% over the past year.

The market reacted swiftly to the news, with Pop Mart shares declining over 6% on the initial day of the downgrade and falling 10% over five trading days. On September 15, the stock opened 2.9% lower, briefly touching an 8.3% intraday slide before closing down 8.2% at HKD254.4, with a turnover of HKD2.877 billion.

Valuation Concerns Drive Analyst Reassessment

The primary driver behind JPMorgan's revised outlook is the assessment that Pop Mart's valuation has become "priced for perfection." Despite the continued robust sales momentum and brand equity of its popular Labubu series, analysts point to an extreme valuation that leaves little room for error. The company is currently trading at estimated Price-to-Earnings (P/E) multiples of 31x for 2025 and 22x for 2026. As of August 2025, its P/E ratio stood at 111.1x, significantly exceeding the Hong Kong Specialty Retail sector average of 12.9x.

JPMorgan analyst Kevin Yin noted that four of Pop Mart's seven identified catalysts—including strong 1H25 results, a collaboration with Uniqlo, inclusion in the index, and new jewelry shop openings—have already been realized. However, the three remaining catalysts, such as the release of animation, the launch of Labubu 4.0, and the introduction of interactive toys, are perceived to have low visibility. Yin cautioned,

"Any small fundamental miss/negative media reports (i.e. resale price drop and third-party licensing) might drive underperformance."

Broader Market Context and Implications

Pop Mart's exceptional stock performance, with year-to-date gains of 209% and a year-over-year increase of 466%, has vastly outpaced the Hang Seng Index, which recorded rises of 32% and 52% respectively over the same periods. While the company has demonstrated strong fundamentals, including a 726.6% year-on-year surge in Labubu IP revenue to RMB 3.041 billion in 2024 and significant international expansion (overseas revenue constituting 38.9% of total sales by 2025), the current premium valuation presents inherent risks.

The downgrade highlights growing concerns regarding potential IP fatigue, increased regulatory scrutiny, and a continued reliance on blind-box sales, which accounted for 61.1% of 2024 revenue. Analysts suggest a fair P/E ratio, derived from discounted cash flow models, to be around 37.3x, implying a substantial overvaluation of approximately 49% at current market levels. This sentiment shift is reflected in the sharp decline of buy ratings on Pop Mart, which have fallen to their lowest in a year, representing a 91% drop.

Future Outlook and Investor Considerations

Looking ahead, the market will closely monitor the execution and impact of Pop Mart's upcoming initiatives. The low visibility surrounding the remaining catalysts suggests that sustained upside may require performance exceeding current expectations. JPMorgan advises that with the current unfavorable risk/reward profile, investors may consider waiting for the next catalyst window, anticipated between 4Q25 and 1Q26, for potential redeployment. The company's ability to diversify its revenue streams, mitigate IP fatigue, and demonstrate consistent growth beyond its core blind-box model will be crucial in justifying its long-term valuation in a discerning market.