Headquartered in Beijing, China, used car e-commerce platform operator Uxin Limited’s (UXIN) shares hit a $9.87 high in December 2018. It has declined sharply since then and closed yesterday’s trading session at $2.80. The company announced on April 22 that it had forged a strategic partnership with JD.com, Inc. (JD) to launch a self-operated online store for used car transactions through JD’s platform. So far the move has failed to generate much investor enthusiasm.
The company has undertaken several transitions over the past few years—from selling its loan facilitation business to at one point focusing on cross-regional transactions—but none has yet boosted the business.
Also last month, UXIN announced that it had completed its strategic transformation into an inventory-owning model, which it began in its fiscal year 2021 third quarter, ended December 31. Nevertheless, its financials for the quarter were disappointing.
Here’s what we think could shape UNIX’s performance in the near term:
Mounting Pressure on China
U.S.–China tensions are showing no sign of diminishing because the Biden administration is likely to maintain limits on U.S. investments in certain Chinese companies imposed under former President Donald Trump. The administration has also urged China to do more to respect the intellectual property of American companies, and has kept China on its ‘priority watchlist’ of nations whose practices require monitoring. Furthermore, the G7 said in May 2021 that it would bolster collective efforts to stop China’s “coercive economic policies.” So, UXIN is expected to feel the impact of increasing scrutiny on Chinese companies.
Weak Financials
The company’s total revenues declined 30.8% year-over-year to $49.48 million for its fiscal 2021 third quarter, ended December 31. This decrease was due primarily to decreases in 2C transaction volume and GMV because of its business model transformation. Its gross profit for the quarter declined 96.6% year-over-year to $1.46 million. Its loss from continuing operations came in at $25.18 million in the quarter and its net loss was $26.49 million.
Poor Profitability
In terms of its trailing-12-month EBITDA margin, UXIN’s 216.6% is lower than the 9.8% industry average. Its trailing-12-month return on common equity and trailing-12-month return on total assets are negative versus 7.3% and 2.4% respective industry averages. Also, the stock’s trailing-12-month return on total capital is negative, compared to the 4.2% industry average.
POWR Ratings Reflect Bleak Prospects
UXIN has an overall F rating, which equates to Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. UXIN has a D grade for Growth which is justified given that its near-term prospects don’t look promising. It has a D grade for Stability as well.
Furthermore, it has an F grade for Quality, in sync with its lower-than-industry profitability ratios.
UXIN is ranked #75 of 78 stocks in the D-rated China group. We’ve rated UXIN for Value, Sentiment and Momentum also. Click here to access all UXIN’s ratings.
Better than UXIN: Click here to access 15 top-rated stocks in the same industry.
Bottom Line
Because the Biden administration is likely to maintain diplomatic and economic pressure on China, several Chinese companies including UNIX continue to face delisting threats. Moreover, the resignation of the company’s CFO, Zhen Zeng, in January is also concerning. Along with these factors, the company’s weak financials and poor profitability make its prospects bleak. So, we think it could be wise to avoid the stock now.
UXIN shares were trading at $2.81 per share on Friday morning, up $0.01 (+0.36%). Year-to-date, UXIN has gained 222.06%, versus a 13.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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