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Why Yatsen Holding Stock Jumped Today

By Jeremy Bowman – Nov 18, 2021 at 1:29PM

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A new share repurchase program and a narrower than expected third-quarter loss helped lift the stock today.

What happened

Shares of Yatsen Holding (YSG 0.61%) were surging today after the company beat bottom-line estimates in its third-quarter earnings report, and announced a new share buyback plan.

As a result, the stock was up 15.4% as of 12:23 p.m. ET.

A woman putting on makeup.

Image source: Getty Images.

So what

Yatsen, which owns a number of Chinese beauty brands including Perfect Diary and Abby's Choice, said that revenue in the quarter rose 6% to $208.4 million, which was short of estimates at $213.8 million.

Slow top-line growth was a reflection of ongoing pandemic headwinds, which has weighed on cosmetics sales, especially in areas like makeup and fragrances.

Gross margin in the quarter rose from 65.7% to 67.9%, primarily due to a shift in sales mix to skin care products and the premiumization of the Perfect Diary brand. On the bottom line, Yatsen's adjusted per-share loss narrowed from $0.18 to $0.05, edging out the consensus by a penny.

The company also announced a new $100 million share buyback program, which would reduce shares outstanding by 5% at today's prices if it were fully executed.

CEO Jinfeng Huang said: "Despite a challenging macroeconomic backdrop and soft industry environment for color cosmetics, our top line continued to grow in the third quarter, supported by a significant growth of our skincare brands. Looking ahead, as we embark upon the next phase of our development, we expect to continue shifting our revenue mix toward higher-quality and more profitable growth."

Now what

Yatsen's fourth-quarter guidance indicated continued headwinds with the company forecasting a decline of 15%-20% in revenue to $250 million-$260 million, which was much worse than estimates at $357.9 million, though Huang's statement indicates that investors should expect margins to improve. 

Given the outlook, the Chinese stock's gains today may seem surprising but shares have already fallen by nearly 90% since their peak in February. Against that backdrop, the bottom-line improvements were encouraging, and the share buyback announcement signals that management thinks the stock is cheap.

Jeremy Bowman 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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