JPMorgan downgrades Pop Mart: After a surge, valuation has reached perfect expectations and the risk-reward ratio has deteriorated.
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J.P. Morgan warns that after Pop Mart's price soared more than 200% this year, “valuation has reached perfect expectations”, the current cost-effectiveness of entering the market has significantly decreased, and the risk-reward ratio is deteriorating rapidly.
On Monday (September 15), Pop Mart plunged again, dropping as low as HK$252 per share, the lowest level since August 5, and more than 25% below its previous record high.
According to TrendChaser, as the share price continued to fall, Kevin Yin, Head of Asia Consumer Research at J.P. Morgan, stated that Pop Mart’s share price surged 209% since the start of the year and 466% in one year, far outpacing the Hang Seng Index’s 32% and 52% increases over the same period. The valuation has reached the level of perfect expectations, and the market's tolerance for any fundamental misses or negative media reports has dropped significantly; in the short term, the risk/reward ratio is no longer favorable.
On this basis, the bank downgraded Pop Mart's rating and target price: rating downgraded from “Overweight” to “Neutral”, and target price lowered from HK$400 to HK$300.
Regarding the market’s concern about the core IP Labubu’s popularity sustainability, J.P. Morgan believes that although secondary market prices have fallen, triggering some investor concerns, this is not a signal of waning IP popularity, but the result of a sharp production expansion.
Despite the downgrade, J.P. Morgan clearly stated that this is not a recommendation to "Underweight," and remains optimistic about Pop Mart’s long-term investment thesis.
Tactical Adjustment After Stock Surge: Valuation is "Priced for Perfection"
J.P. Morgan’s core logic for this downgrade is very clear: the share price has soared too quickly and too high, making near-term risks greatly exceed potential returns.
The research report stated that as of September 12, 2025, Pop Mart’s share price has soared 209% year-to-date and rocketed 466% in the past year, far outpacing the 32% and 52% gains of the Hang Seng Index over the same period.
Such astonishing performance means the market has fully priced in all optimistic expectations (from performance growth to blockbuster IPs). J.P. Morgan describes this as “valuation is priced for perfection”. The bank believes:
In this situation, any disturbance—whether a minor fundamental error by the company or negative news about falling secondary prices or third-party licensing—could trigger a sharp stock pullback.
Based on this, J.P. Morgan downgraded Pop Mart's rating from “Overweight” to “Neutral” and cut the December 2026 target price from HK$400 to HK$300.
Valuation model adjustment is key: The PEG multiple used by the bank was lowered from 1.5 to 1.1, reflecting increased consideration of risk at current highs.
The research pointed out that part of this surge was powered by a series of realized catalysts. Of the seven catalysts previously listed by J.P. Morgan, four have materialized, including:
Strong earnings report for 1H 2025; successful collaboration with Uniqlo; inclusion in major indices; and successful opening of jewelry stores.
However, J.P. Morgan noted that visibility for the three remaining potential catalysts is low, including: the release of season 1 of the “Labubu & Friends” animation (delayed from summer), the launch of Labubu 4.0 before Christmas/Lunar New Year, and the potential release of interactive toys.
With old positive catalysts exhausted and new ones not yet clear, the stock lacks solid upward momentum. Therefore, JP Morgan recommends investors patiently wait for the next catalyst window between Q4 2025 and Q1 2026 before making decisions.
Tracking Core IP Heat: Supply Surge Is the Main Reason for Lower Secondary Prices
The market’s top concern for Pop Mart is undoubtedly the sustainability of core IP Labubu's popularity. J.P. Morgan noticed that recently both Google search heat and resale prices in the secondary market have declined, triggering some investor concerns.
However, the report explained: This is not a signal of waning IP heat, but the result of drastic production expansion. According to management, current manufacturing capacity has reached nearly 10 times that of Q1 2025. The rapid rise in supply naturally dilutes secondary market premiums.
It is worth noting that Goldman Sachs also stated in its latest report that the correction in secondary market premium is more related to the company’s increasing monetization efforts. Goldman pointed out that the initial batch of Mini Labubu was about 1 million units, significantly higher than previous series.
The report supports this view with precise data:
Labubu 3.0 secondary market price: In the Chinese market, price dropped from a peak of RMB 2,284 on June 12 to RMB 687 on September 11, a 70% fall, but still maintains a 15% premium over retail price.
On the overseas StockX platform, the price dropped from a peak of USD 401 to USD 146, 13% below retail price.
Mini Labubu secondary market price: Despite high new release enthusiasm, its secondary market price in China dropped 22% from RMB 2,088 to RMB 1,622, but still keeps a 46% high premium.
J.P. Morgan believes that search heat is a good indicator to measure new customer acquisition speed, but is not directly equivalent to an IP’s lifecycle. The report uses Pokémon as an example: in 2023, its search heat was only 15% of the 2016 peak, but 2023 sales were three times those of 2016.
According to prior TrendChaser reports, Morgan Stanley also believes the market may be overreacting to high-frequency data and that secondary market price fluctuations are misleading, as the secondary market only accounts for a small part of total supply and demand.
Not Recommending “Underweight”: Long-term Investment Thesis Remains Solid
Despite the downgrade of the short-term rating, J.P. Morgan clearly states it is not recommending an “Underweight” (reduce), and its long-term positive view on Pop Mart's investment logic remains intact. The report reiterates three long-term pillars:
Mature IP exploration and monetization capabilities: The company has proven its ability to use social media to successfully incubate and commercialize IP globally.
Diversified IP portfolio: The company is working hard to reduce reliance on a single IP, and it is expected that by 2027, Labubu's sales will account for 35% of total.
Successful global expansion: Overseas business is growing rapidly, and by 2027 is expected to contribute more than 60% of group profits.
Meanwhile, the report believes that Pop Mart’s management quality, execution capability, and shareholder returns make it one of the best Chinese consumer companies, on par with leading companies like Anta and Yum China.
Regarding the recent market attention on artist Kasing Lung's collaboration with LVMH brand Moynat, J.P. Morgan thinks it matches the license agreement, and though it may confuse the market in the short term, in the long run it is beneficial to Labubu’s global brand value.
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