What happened
Niu Technologies(NASDAQ: NIU), a Chinese manufacturer of electric scooters, released a fourth-quarter earnings report before the bell Monday morning that failed to deliver a charge to investors. As a result, many of them unplugged the stock from their portfolios.
As of 11:34 a.m. ET, shares of Niu Technologies were down 17.2%.
So what
CEO Yan Li tried to put a positive spin on the quarter. "We are very pleased to see another quarter of outstanding performance with 49.2% and 155.8% [year-over-year] increase in domestic and international sales volume, respectively, amid weaker economic conditions," he said in the accompanying press release. The market, however, seemed to be focused on other aspects of the financial statement.
Image source: Getty Images.
For example, Niu's gross profit margin contracted due to higher material costs and a shift in its sales mix -- from 25.2% in the prior-year period to 22.6% in the recently completed quarter. The bottom line, unsurprisingly, reflected that. Niu's net profit margin of 4.8% was notably narrower than its 8.7% margin in Q4 2020.
For the first quarter of 2022, management is guiding for year-over-year top-line growth in the range of 20% to 30%. While that forecast is auspicious, investors may be more concerned with management's failure to talk about whether the company is expected to suffer from further margin contraction that weakens its profitability.
Now what
The sell-off of Niu's stock was unsurprising considering the company's margin contraction. This situation, however, is likely a temporary one, and the fact that its scooter sales are growing both in China and internationally is a positive signal. But Niu is now down by about 74% over the past year. At this point, patient growth investors have a chance to pick up shares while they're in the bargain bin.
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