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Why LightInTheBox Stock Crashed on Monday

By Jon Quast - Dec 7, 2020 at 1:24PM

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The e-commerce company's revenues were up in Q3, but its profits were down.

What happened

Shares of Chinese e-commerce company LightInTheBox Holding ( LITB -7.43% ) fell Monday after the company provided investors with its unaudited third-quarter financial results. Business is up this year, and management's guidance for the fourth quarter suggests it could get even better. But the stock was nevertheless down by 15.8% as of 1:18 p.m. EST.

So what

For Q3, LightInTheBox generated revenue of $100 million, up 67% year over year. And for the first three quarters of 2020, revenue is up 57% from the comparable period of 2019. Not only that, the company's gross margin has increased thanks to management's efforts to improve its supply chain and sell more profitable products.

A frustrated man lays his head on a table with a down stock chart in the background.

Image source: Getty Images.

So why is LightInTheBox stock down? Penny stocks like this one can trade unpredictably, but there were a couple of specific things in the report that investors might not have liked. First, while the company's gross profit margin improved, its net profit margin shrank. Specifically, marketing expenses ate into profits, leaving it with just $7 million in net income, down 26.7% from last year.

Additionally, the COVID-19 pandemic has helped e-commerce companies, but the market share gains they have made might not persist once the health crisis recedes. Perhaps some investors are selling now due to fears that LightInTheBox's sales could pull back next year.

Now what

For Q4, LightInTheBox management is guiding for revenue of between $120 million and $135 million. That would amount to year-over-year growth in the 61% to 81% range -- better growth than it has posted so far this year. However, that's a wide range, perhaps reflecting some doubt on management's part, which could be another subtle reason why the stock slid Monday morning.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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LightInTheBox Holding Co., Ltd. Stock Quote
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LITB
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