Pop Mart's Valuation Justification Amid Explosive Growth and Global Expansion: A Deep Dive into IP-Driven Innovation and Margin Strength

Pop Mart International Group (SEHK:9992) has emerged as a global phenomenon in the collectibles and pop culture space, driven by its IP-centric business model, razor-sharp margin discipline, and aggressive international expansion. As of August 2025, the company trades at a P/E ratio of 111.1x and a P/S ratio of 26.1x, multiples that starkly outpace its peers in the Hong Kong Specialty Retail sector (average P/E: 12.9x, P/S: 0.6x). While skeptics argue these valuations are speculative, a closer examination of Pop Mart's fundamentals reveals a compelling case for its premium pricing—provided the company sustains its innovation and execution.

The IP-Driven Engine: From Labubu to Global Superfranchises

Pop Mart's success hinges on its ability to create emotionally resonant intellectual properties (IPs) that transcend cultural and geographic boundaries. The Labubu phenomenon, for instance, generated RMB 3.041 billion in revenue in 2024—a 726.6% year-over-year surge—by tapping into Gen Z's appetite for “emotional collectibles.” This character's dark, whimsical aesthetic and limited-edition scarcity model have turned it into a global icon, with derivatives spanning plush toys, fashion, and even digital art.

The company's IP portfolio is not a one-trick pony. Established IPs like MOLLY and Skullpanda continue to generate steady revenue, while newer additions such as The Monster and Hirono are rapidly scaling. By 2024, plush toys alone contributed 21.7% of total revenue, up from 1.4% in 2020, with a gross margin of 68%—a testament to the high-margin potential of IP-driven products.

Margin Mastery: Scaling Without Sacrificing Profitability

Pop Mart's financials underscore its operational excellence. In 2024, the company's gross margin hit 66.8%, up 5.5 percentage points from 2023, driven by supply chain optimizations and a shift toward high-margin overseas markets. Inventory turnover days improved from 133 to 102, and production capacity surged from 300,000 to 10 million plush units monthly. These metrics highlight a business that scales efficiently, avoiding the margin compression often seen in fast-growth companies.

Net profit in 2024 soared 185.9% to RMB 3.4 billion, with projections of doubling in 2025. This profitability is critical in justifying the company's lofty multiples. While a P/E of 111.1x may seem excessive, it aligns with the company's forward-looking growth trajectory. For context, the estimated fair P/E ratio, based on discounted cash flow models, is 37.3x—a 3x discount to current levels. This suggests the market is pricing in 40–50% annual earnings growth over the next 3–5 years, a target Pop Mart has already exceeded in recent quarters.

Global Expansion: From China to the World

Pop Mart's international strategy is a masterclass in localization and cultural agility. By 2025, overseas revenue accounted for 38.9% of total sales, up from 8% in 2020. Markets like the U.S., Europe, and Southeast Asia saw explosive growth: U.S. revenue surged 895% year-on-year in Q1 2025, while European sales jumped 600%. The company's DTC model in overseas markets—bypassing intermediaries—has amplified margins and brand control, with e-commerce revenue from international platforms growing exponentially.

The company's “experiential retail” approach further differentiates it. Pop Mart's Louvre-themed store in Paris and collaborations with local artists in Vietnam's Sun World Ba Na Hills exemplify its ability to blend global IP with regional storytelling. This strategy not only drives foot traffic but also fosters brand loyalty among Gen Z consumers, who value immersive, shareable experiences.

Risks and Realities: Can the Premium Be Sustained?

Despite its strengths, Pop Mart faces headwinds. IP fatigue is a real risk—Labubu's dominance could wane if newer IPs fail to capture attention. Regulatory scrutiny in China and the U.S. over product safety and marketing practices also looms. Additionally, the company's reliance on blind-box sales (which account for 61.1% of 2024 revenue) exposes it to consumer sentiment shifts.

Analysts' price targets (average: HK$178.23) and Morningstar's fair value estimate (HK$164) suggest the stock is overvalued by ~49% as of August 2025. However, these models may underestimate the compounding power of Pop Mart's IP ecosystem. For instance, the Hirono IP's evolution into a lifestyle brand by 2025 demonstrates the company's ability to monetize beyond toys, creating recurring revenue streams.

Investment Thesis: A Long-Term Buy Amid Volatility

Pop Mart's valuation is undeniably stretched, but its business model is built for compounding. The company's IP portfolio, margin resilience, and global expansion create a flywheel effect: strong cash flows fund new IPs, which drive further revenue and margin expansion. While short-term volatility is inevitable—especially with insider sales like Fengqiao Capital's HK$2.2 billion exit in May 2025—long-term investors should focus on the company's ability to sustain 30–40% revenue growth and maintain gross margins above 60%.

For investors with a 5–7 year horizon, Pop Mart offers a rare combination of high-growth potential and operational discipline. However, prudence is advised: position sizing should reflect the stock's volatility, and investors must monitor key metrics like IP development cadence, international revenue contribution, and regulatory risks.

In conclusion, Pop Mart's premium multiples are justified by its unique ability to monetize IP, scale margins, and expand globally. While the stock may face corrections if growth slows, its long-term potential as a global super IP brand remains intact. For those willing to ride the volatility, Pop Mart represents a compelling case of innovation-driven value creation.