Noah Holdings Ltd. shares tumbled Monday after a J.P. Morgan analyst downgraded his rating on the Chinese financial company's stock.
THE SPARK: Analyst Josh Klaczek downgraded his rating on the company's shares to "neutral" from "overweight." He said that while Noah performed above expectations in its most recent quarter, the stock will be a "show-me story" in the second half of the year due to recent volatility and interbank stress.
THE BIG PICTURE: Noah sells wealth management products to high-net-worth people in China. The company primarily sells over-the-counter financial products, including private equity funds and securities investment funds. Its revenue comes mainly from one-time selling fees and recurring fees from product providers.
The company reported last week that its second-quarter revenue and profit more than doubled from a growing base of clients spending more per transaction.
THE ANALYSIS: Klaczek said that the strong results were not unexpected, as the company had recently increased its guidance, but the growth was impressive nonetheless. The analyst increased the price target on Noah Holdings' American depository shares to $16 from $9.50.
However, he said that he thinks the company's strength is already reflected in its share price and would wait for better entry points to buy in. In turn, he downgraded the stock to "neutral."
SHARE ACTION: Noah Holdings' U.S.-traded shares fell $2.81, or 17 percent, to close at $13.69 Monday. The shares have nearly tripled since this time last year.