Please ensure Javascript is enabled for purposes of website accessibility

Why RLX Technology Stock Sank on Wednesday

By Evan Niu, CFA - Updated Jun 2, 2021 at 12:13PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Chinese vaping specialist reports first-quarter results as regulatory fears linger.

What happened

Shares of RLX Technology (RLX 2.10%) sank by as much as 10% today after the company reported first-quarter earnings. As of 11:30 a.m. EDT, the stock was still down 8%.

So what

Revenue in the first quarter increased 48% to $366.1 million, which resulted in adjusted net income of $93.2 million, or $0.06 per American depositary share (ADS). The Chinese consumer discretionary company, which sells vaping products in China, attributed the growth to higher sales to offline distributors. Gross margin expanded to 42.9%, and RLX Technology finished the quarter with $2.2 billion in cash on its balance sheet. Most of that cash was raised in RLX's IPO in January.

Man vaping while reading on a tablet.

Image source: Getty Images.

"2021 began, on a solid note, with strong growth in key performance metrics of our business," CEO Kate Wang said in a statement. "Specifically, our expansion in distribution network fueled a strong sequential growth, further demonstrating sustained user demand for our e-vapor product portfolio."

Now what

Guidance for the second quarter calls for revenue of at least 2.85 billion yuan ($446.6 million based on current exchange rates) and adjusted net income of 720 million yuan ($112.8 million based on current exchange rates). Gross margin is expected to "remain steady."

Investors may be rattled by ongoing uncertainties on the regulatory front. The Chinese government has proposed new rules that could regulate vaping products similarly to traditional tobacco offerings. There are concerns that the move could hurt the industry's growth, and RLX is the market leader for these products.

Evan Niu, CFA 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

RLX Technology Inc. Stock Quote
RLX Technology Inc.
RLX
$1.46 (2.10%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
397%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/20/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.