On Monday, Citi revised its stance on So-Young International Inc. (NASDAQ: NASDAQ:SY), lowering the stock's rating from "Buy" to "Neutral" and reducing the price target to $0.80 from the previous $1.50.
The adjustment comes amid expectations of persistent challenges in the Pay-Per-Click (POP) sector, reflecting weaker consumer demand and the company's loss of market share to competitors with more significant online presence.
So-Young's second-quarter financials for 2024 showed a slight year-over-year revenue decline of 1.1% to Rmb407 million, surpassing the forecasted range of Rmb380-400 million.
This performance was attributed to a stronger upstream business, which helped to partially mitigate the ongoing weakness in the POP business within the medical aesthetic industry. The company's non-GAAP profit also exceeded expectations, reaching Rmb22 million against the anticipated Rmb21 million.
Despite the better-than-expected results in the second quarter, So-Young provided a cautious outlook for the third quarter of 2024, projecting revenues to fall between Rmb350-370 million. This represents a decrease of 9.2% to 4.0% year-over-year, which is lower than initial estimates, due to continued challenges in the POP segment and a seasonal slowdown affecting the upstream business.
The company's ongoing efforts to diversify, including the expansion into offline ventures such as SY Prime and further investment in upstream operations, are intended to mitigate some of the negative impacts in the near term.
Following the earnings per share (EPS) revisions, Citi's new price target of $0.80 is based on an 8x multiple of the projected 2025 non-GAAP EPS of Rmb0.70 (US$0.10).
InvestingPro Insights
As So-Young International Inc. (NASDAQ: SY) navigates through its current challenges, the latest data from InvestingPro provides a mixed financial outlook. With a market capitalization of $74.98 million, the company is trading at a P/E ratio of 18.69, which adjusts to a more favorable 15.64 when considering the last twelve months as of Q2 2024. This suggests that while the stock is currently facing headwinds, it may be undervalued relative to its earnings potential. In fact, one of the InvestingPro Tips indicates that So-Young is trading at a low Price / Book multiple of 0.22, which could attract value investors looking for stocks that may be trading below their intrinsic value.
Revenue growth, though modest at 9.55% over the last twelve months as of Q2 2024, has not translated into positive operating income, with an adjusted operating income of -$5.09 million indicating the company is still working to find its footing. However, the company holds more cash than debt on its balance sheet and has liquid assets that exceed short-term obligations, which are crucial indicators of financial stability. Furthermore, analysts predict the company will be profitable this year, a sentiment echoed by the company's profitable performance over the last twelve months.
Investors considering So-Young should note that the stock has experienced significant price declines over various time frames, including a 29.33% drop over the last three months. Yet, this may also signal a potential buying opportunity for those who believe in the company's fundamentals and long-term strategy. For those interested in a deeper analysis, InvestingPro offers additional tips and metrics to aid in making a more informed investment decision.
The insights provided here are just a glimpse, and interested readers can find a comprehensive list of 15 additional InvestingPro Tips for So-Young International Inc. at https://www.investing.com/pro/SY.
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