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Why Autohome Stock Lost 26% in May

By Demitri Kalogeropoulos – Jun 10, 2019 at 7:57AM

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Investors are worried about a slowdown in the Chinese car market.

What happened

Chinese automobile retailer Autohome (ATHM 3.22%) underperformed a weak market last month as the stock fell 26% compared to a 7% decline in the S&P 500, according to data provided by S&P Global Market Intelligence.

The drop still left shareholders ahead of the market so far in 2019, with the stock up about 17% this year.

A customer shaking hands with a salesman giving him the key to his new car.

Image source: Getty Images.

So what

The e-commerce specialist posted solid first-quarter earnings results early in the month that included a 25% sales increase, which surpassed the high end of management's guidance. Earnings expanded at a faster rate, leading to a healthy boost in adjusted profitability. Yet investors chose to focus more on the weakening economic picture. CEO Min Lu said in a conference call with analysts that "a challenging operating environment" was slowing the auto industry's growth outlook.

Now what

Autohome is predicting that sales gains will decelerate to about 22% in the second quarter, due mainly to weaker industry demand for new vehicles. Investors will be following that top-line trend for signs of stabilization in the coming quarters. In the meantime, look for the e-commerce giant to continue pouring resources into solidifying its market leadership position, while still modestly expanding profitability.

Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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