What happened

Shares of Peabody Energy (BTU -1.73%) crashed 16% by noon EDT on Tuesday, tanking on a day the coal stock received an analyst upgrade and one day after skyrocketing. 

Blame China.

So what

This morning, B. Riley raised its price target on Peabody Energy by $1 to $23 a share, stating it saw the company's preliminary results as a "positive step forward."

Peabody Energy reported its preliminary numbers for the third quarter yesterday, announcing its coal sales had topped $900 million to levels not seen in nearly seven quarters. However, the company still expects only low single-digit growth in revenue as it booked a loss of nearly $238 million on coal hedges and expects to report a net loss of $40 million-$60 million for the quarter.

Here's the thing: If Peabody Energy is unable to turn a profit even during a surge in coal prices, what can an investor expect to see from the mining company when coal prices lose steam?

A worried person studying a falling price chart on a laptop.

Image source: Getty Images.

After hitting all-time highs early today, coal prices in China later tumbled 8% after the state planner revealed its intention to intervene and bring down coal prices to reasonable levels, according to Reuters. China's National Development and Reform Commission announced Tuesday morning it had ordered more than 150 coal mines to boost production to help alleviate the power supply crunch in the nation.

The curbs on mining set by China earlier this year to combat pollution were among the biggest factors that drove coal prices higher. The latest reports reveal China's coal output just hit its highest level in 2021.

Now what

I stated yesterday that the market was evidently betting on higher coal prices and not Peabody Energy's preliminary numbers, as I didn't quite find the numbers exciting given the strong coal-price environment. The coal stock's sharp drop today supports my argument, which also means betting on Peabody Energy shares is speculative, as they could drop even lower if China's moves help cool down coal prices.