The traditional gold craftsman’s stock tumbled after an earnings forecast last week showed its revenue and profit plunged in the second quarter compared with the first

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Key Takeaways:

  • Laopu Gold said its revenue rose sharply in the first half of this year, but the figure dropped sharply from the first quarter to the second as gold prices retreated
  • Investors believe gold prices are unlikely to rebound to record highs from the beginning of the year in the second half of 2026

It’s sometimes called the "Hermes of gold jewelers," thanks to an upscale image centered on high craftsmanship for its premium gold products.But Laopu Gold Co. Ltd. (6181.HK) lost its shine for investors last Tuesday, as its stock tumbled 24% in a single day, wiping out HK$16.7 billion ($2.14 billion) in market value.

The fall came after the company issued what looked like an upbeat profit alert after the market closed the previous day, saying it earned 19.8 billion yuan ($2.92 billion) to 20.45 billion yuan in the first half of 2026, up 60% to 66% year-on-year. Even better, the company said its non-IFRS profit reached 4.31 billion yuan to 4.36 billion yuan, up 83% to 85%.

So, why did investors flee in the face of such seemingly solid financials? The reality is that sky-high expectations were already priced into the stock. And while the headline numbers looked impressive, some calculations using previously announced data showed the company’s revenue and profit both plunged 80% in the second quarter compared with the first.

Meteoric gains

Many may argue the selloff was inevitable. The stock was on a tear in the first year after Laopu sold shares for HK$40.50 apiece in its June 2024 Hong Kong IPO. It rose 27 times at one point to a high of HK$1,108 last July, giving it a meteoric price-to-earnings (P/E) ratio of 144 times.

The company’s growth in its first two years post-listing was indeed eye-catching, and may have justified the run-up to some extent. Its profit in 2024 rose 254%, and climbed another 230% to 4.87 billion yuan last year, creating huge expectations for similar growth ahead. In that context, it’s not difficult to see why the 83% to 85% growth in the first half of this year probably left many investors disappointed.

To understand why Laopu fell so heavily, we need to look at why its stock rose so sharply in the first place.

Traditional jewelry shops in China typically base their prices on the cost of gold, plus a mark-up to cover overhead and leave them with some profits. Such mark-ups were traditionally low, meaning jewelry prices were often close to the value of the gold they contained, limiting gross profit margins for jewelers.

But Laopu, like other famous designer brands, operated on a different model. Its pricing wasn’t determined simply by the price of gold, nor did it rely on simple markups for profits. Instead, it charged much bigger premiums for its products, selling itself as a master gold craftsman. Consumers are typically willing to pay such high markups because the brand isn’t merely an expression of taste, but also a status symbol.

More than simple gold

Laopu Gold boss Xu Gaoming understood such logic and built his company around it. While the company’s name literally means "old shop" he was never content with simply running a traditional gold jewelry outlet. Instead, he set his sights on building a famous brand that could bring him greater profits, eschewing a more traditional generic gold-selling model practiced by older chains like Chow Tai Fook (1929.HK) or Luk Fook (0590.HK).

His strategy centered on using ancient techniques, including inlaying, engraving, hammering, chasing, and filigreeing, combined with innovative technology to create unique products that could stand out from more generic ones in traditional shops. The company went a step further by saying its products were made using methods from China’s imperial courts, adding an element of royalty to their cache.

As its reputation and brand gained traction, the company steadily raised its prices over the past two years, facilitating the meteoric profit gains. Consumers increasingly saw its products as not only fashion statements, but also investments that could retain and even appreciate in value regardless of day-to-day gold prices.

This strategy was initially effective, as reflected by Laopu’s strong triple-digit profit gains over the last two years and surging stock. But maintaining that kind of momentum is difficult and, sensing that, some investors began profit taking last year as the stock began to look overpriced.

At the same time, traditional gold jewelers like Chow Tai Fook and Luk Fook were outshining Laopu in terms of their store networks and operating history. Yet their P/E ratios stand at a mere 7 to 13 times, now similar to Laopu’s current ratio of about 10 after its recent declines. Even if its results had more shine, Laopu is still a traditional consumer company at the end of the day, and not in AI or other high-tech sectors that have become investor favorites.

High inventory, falling gold prices

Making matters worse for Laopu and its more traditional peers are the latest gold price trends. Prices have been dropping steadily after peaking at around $5,600 per ounce at the start of the year, falling below $4,000 at one point last month. While Laopu is less sensitive than its peers to the price of gold, the precious metal is ultimately still its biggest cost. A continuation of falling prices would almost certainly scare away consumers, worried that today’s purchase may quickly lose value if the trend continues.

That could be a factor behind the company’s rapidly growing inventory. Its inventory stood at 4.09 billion yuan by the end of 2024, and surged nearly fourfold to 16 billion yuan by the end of last year. At the same time, its inventory turnover days reached a lengthy 216 days. Such high inventory levels are less of a problem when gold prices are rising, since such assets naturally rise in tandem. But the current environment is pressuring the company to sell down some of its gold stockpile before prices drop even further, which is a major factor pressuring its stock.

Given the uncertain outlook for both Laopu and gold, investors are naturally becoming more conservative about the company in the second half of the year, with low expectation for gold prices to return to their earlier highs.

In announcing its second-quarter financials last month, gold mining giant Newmont (NYSE:NEM) only maintained its full-year guidance, indicating a gold price of about $4,500. The World Gold Council was less bullish, forecasting that gold prices would hover around the $4,100 level. Prices could start to rise again if economic or geopolitical situations deteriorate, or if interest rates fall, which could lure long-term capital back into the markets for gold and related stocks. But such a trend is far from certain

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.