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Why Shares of KE Holdings Are Falling Today

By Bram Berkowitz – Aug 12, 2021 at 11:59AM

Key Points

  • The largest real estate platform in China has been touted by analysts, but faces uncertainty from the regulatory climate in the country.

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The company recently reported its earnings results from the second quarter of 2021.

What happened

Shares of KE Holdings (BEKE 2.86%), the largest real estate platform in China, traded as much as 16% down at one point this morning after the company reported earnings for the second quarter of the year. As of 11:15 a.m. EDT, however, shares were down 4.15%.

So what

The company reported diluted earnings per American depositary share equivalent to $0.14, which is down 56% from the second quarter of 2020. Total revenue, however, equivalent to roughly $3.7 billion, grew 20% from the second quarter of 2020. Earnings missed analysts' expectations, but revenue beat.

In the third quarter, management is projecting total net revenue to be between $2.2 billion and $2.4 billion, representing a decrease of approximately 24.6% to 29.4% from the same quarter of 2020. 

"During the second quarter, a slew of city-specific policies and severe market-cooling measures were rolled out in China," Tao Xu, CFO of the company, said in a statement. "Those measures help promote a stable and healthy development of real estate market in the long run, but may bring about short-term market uncertainties." 

Person's hand drawing red, squiggly line downward.

Image source: Getty Images.

Now what

Analysts recently gave KE Holdings a consensus buy recommendation, with an average one-year price target of nearly $67, implying huge upside from current levels.

But as management showed in the recent quarter, its business can be heavily impacted by regulation in China. The Q3 projections take into consideration "the potential impact of the recent real estate related policies and measures, and the Company's current and preliminary view on the business situation and market condition, which is subject to change," according to a press release.

The stock will be volatile going forward and has already recovered much of its loss from earlier this morning. Ultimately, I'd say this is a high-risk, high-reward kind of play.

Bram Berkowitz 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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Stocks Mentioned

KE Holdings Inc. Stock Quote
KE Holdings Inc.
BEKE
$15.11 (2.86%) $0.42

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