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Is Yatsen Holding a Buy Under $1?

The shares of leading Chinese cosmetics company Yatsen Holding (YSG) have been losing momentum over the past year due to increased delisting concerns amid strained Sino-U.S. diplomatic relations. So, as regulators from both countries increase cooperation regarding U.S.-listed Chinese stocks, the question is will YSG stock regain momentum soon? Read more to find out.

Founded in 2016, Yatsen Holding Limited (YSG) in Guangzhou, China, is a leading top color cosmetics brand in China in terms of retail sales value. Since its inception, the company has boosted its organic and inorganic growth, making it one of the top players in China's beauty market.

However, shares of YSG have plummeted 93.9% in price over the past year and 67.6% year-to-date. 

Increasing geopolitical tensions between the United States and China and concerns over the potential delisting of Chinese ADRs caused investors to adopt a bearish sentiment regarding the stock.

Here is what could shape YSG's performance in the near term:

Non-Compliance with NYSE Listing Rules

This week, YSG received a letter from the NYSE stating that the stock is currently trading below $1, thereby violating the stock exchange's American Depositary Shares listing rules. As per NYSE rule 802.01C, a stock is non-compliant with the listing rules if the average closing prices of the shares are below $1 for 30 consecutive days.

YSG has six months to boost its share prices to above $1 to remain listed on the NYSE. The company announced its plans to monitor the market conditions closely and undertake various measures to remain compliant and avoid potential delisting.

However, the company still runs the risk of potential delisting, given the Chinese government's recent crackdown on foreign listed companies. Despite the latest news on cooperation between the Chinese and U.S. officials to keep China-based stocks listed in the U.S., Jamie Allen, of the Asian Corporate Governance Association, expects the delisting to happen within the next two to three years.

Mixed Growth Prospects

Analysts expect YSG's revenues to decline 39% year-over-year to $136.90 million in its fiscal 2022 first quarter (ended March). Furthermore, the company's revenues are expected to decrease 38.8% year-over-year to $143.96 million in its  fiscal second quarter (ending June 30) and 17% year-over-year to $174.44 million in the next quarter. Also, the consensus revenue estimate indicates a 16.1% decline year-over-year in its fiscal year 2022 and a 4% decline from the same period last year in the next year.

The consensus EPS estimate indicates a 22.1% improvement in the about-to-be-reported quarter but a 3.5% decline in the current  quarter. In addition, the Street expects the company's EPS to remain negative until at least next year. Nevertheless, YSG's bottom line is expected to improve by 24.4% in the current year and 45.3% in its fiscal 2023.

Mixed Valuation

In terms of forward Price/Sales, YSG is currently trading at 0.58x, which is 53.7% lower than the 1.25x industry average. Its 0.46 forward Price/Book multiple is 84.6% lower than the 2.99 industry average. In addition, the stock's 0.09 forward EV/Sales multiple is 95.2% lower than the 1.80 industry average.

However, YSG's 75.77 forward Price/Cash Flow ratio is 460% higher than the 13.53 industry average. Also, the stock's EV/EBITDA multiple is negative 0.03.

POWR Ratings Reflect Uncertainty

YSG has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Momentum and Growth. YSG is currently trading slightly below its 50-day and 200-day moving averages of $1.09 and $3.35, respectively, indicating a downtrend, in sync with the Momentum grade. Also, YSG's trailing-12-month revenues rose 11.6% year-over-year, but its trailing-12-month total assets fell 39.1% over this period, justifying the Growth grade.

Among  the 47 stocks in the C-rated Specialty Retailers industry, YSG is ranked #38.

Beyond what I have stated above, view YSG Ratings for Sentiment, Stability, Quality, and Value here.

Bottom Line

Despite being one of the leading cosmetics brands in China, analysts expect the company's revenues to plummet in the near term due to slowing consumer demand amid the resurgence of COVID-19 cases in China and continuing supply chain restrictions. Also, as a potential U.S. delisting threat looms, we think investors should wait until the global economy stabilizes before investing in the stock.

How Does Yatsen Holding (YSG) Stack Up Against its Peers?

While YSG has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, TravelCenters of America LLC (TA) and ODP Corp. (ODP), which have an A (Strong Buy) rating.

Click here to checkout our Retail Industry Report for 2022

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YSG shares were trading at $0.71 per share on Thursday afternoon, down $0.01 (-0.84%). Year-to-date, YSG has declined -66.98%, versus a -6.96% rise in the benchmark S&P 500 index during the same period.



About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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