Morgan Stanley Defends Pop Mart Despite Secondary Market Collapse, Says Resale Prices "Misleading"
In a stark warning to sentiment-driven traders, shares of Chinese toy giant Pop Mart plunged 7.5% on September 8, wiping out gains and falling below the key HK$300 level. The catalyst was the spectacular collapse of secondary market prices for its wildly popular LABUBU collectible figures, sparking fears that the speculative bubble has finally burst.
Yet, as panic selling gripped the market, analysts at Morgan Stanley issued a contrarian report on the same day, forcefully defending the company's fundamentals. In a note titled "What's the Market Trading On Today?", the bank argues that the sell-off is a technically-driven overreaction to a "misleading" data point, presenting a buying opportunity for investors focused on the longer-term picture.
The LABUBU "Price Avalanche"
The market's anxiety stems from a rapid cooling of the speculative frenzy that had surrounded Pop Mart's products. The Mini LABUBU series, released on August 28, saw its rare "hidden" figures initially hyped to nearly RMB 1,000 yuan (approximately US$140) on resale platforms. Just a week later, the fervor had evaporated.
According to data from collectible trading platforms, prices for a full set of the fourth-generation LABUBU series have fallen back to a range of RMB 1,400 to RMB 1,850, with some less popular individual figures now trading below their official retail price of RMB 79. The price collapse has also hit older series, with the third-generation LABUBU collection dropping from a peak of RMB 1,380 in June 2025 to as low as RMB 600. The rapid downturn has reportedly forced many scalpers to halt purchases, leaving speculators who had invested heavily facing significant losses.
Morgan Stanley: Resale Market a "Misleading Indicator"
In its sharp rebuttal to the market narrative, Morgan Stanley asserts that the focus on secondary market prices is misplaced. The bank contends that these prices are not an accurate reflection of genuine consumer demand, especially as Pop Mart scales up its operations.
In the report, analysts led by Dustin Wei write:
"We continue to highlight that Pop Mart’s resale market represents a small portion of total supply and demand, and hence resale price is NOT an effective indicator to gauge real demand, especially given Pop Mart has been actively increasing supply capacity and working against resellers. While resale price is likely the only high-frequency data that the market can easily track, it can be misleading."
The bank notes that this is the third time in 2025 that the market has panicked over LABUBU's resale value, suggesting a pattern of overreaction. Furthermore, Morgan Stanley points to technical factors exacerbating the stock's decline, observing that Pop Mart's recent inclusion in the Hang Seng Index triggered a significant wave of short-selling, with 6.3 million shares shorted last Friday, accounting for 31% of the day's turnover.
Beyond The Hype: Diversification and Disciplined Growth
Morgan Stanley urges investors to look beyond the LABUBU frenzy and focus on the company's diversifying IP portfolio and disciplined business strategy. The bank maintains an "Overweight" rating and designates Pop Mart as a "Top Pick," arguing its fundamental strengths are intact.
While acknowledging LABUBU's importance, the report emphasizes it is not the sole growth engine:
"While Labubu is the key driver for PPMT, it is not the only IP gaining popularity. Labubu accounted for 35% of sales in 1H25 and Molly/Skullpanda/Dimoo/Crybaby in total accounted for 35%. We see strong demand for Crybaby (9% of 1H sales) and Twinkle Twinkle (3% of 1H sales), and think their sales mix will rise."
This data points to a healthier, more diversified revenue structure, reducing the company's dependence on a single hot product.
Moreover, the bank praises Pop Mart’s controlled expansion, which prioritizes long-term sustainability over short-term hype. This deliberate approach is evident in its retail and production strategy:
"PPMT's growth approach remains disciplined and restrained. It only net opened 12 stores in Greater China while the offline sales were up 117% in 1H. It has delayed a few Labubu products... due to a supply shortage of existing SKU."
This disciplined strategy, combined with a powerful direct-to-consumer (DTC) model, allows the company to foster a strong connection with its fan base and manage growth sustainably. For Morgan Stanley, the current valuation, trading at 24 times their 2026 earnings estimate, offers an attractive entry point into a company whose powerful IP creation and global expansion potential remain compellingly underestimated by a market fixated on fleeting, speculative signals.