Why did the stock price plunge despite the listed company's profit growth?

Those who have spent enough time in the market understand that short-term price movements are driven primarily by changes in valuation. Even if a listed company’s profits grow, poor quality of that growth can easily trigger a significant re-rating—leading to a sharp stock price decline. This is especially common in growth-stock investing. For example: A company has a stable business model and operates in a highly cyclical industry; it is expected to achieve an annualized growth rate of 40% over the next three years—a textbook growth profile. The market rewards this with a generous 40x P/E multiple. But when earnings verification season arrives, the actual growth comes in at only 35%. Though seemingly just a 5-percentage-point shortfall—and still robust—the capital markets quickly recalculate: “Without 40% growth, the valuation must be downgraded—let’s reset to 30x.” Consequently, the stock drops over 20% almost overnight. Uninformed investors may be utterly bewildered—“A 5% earnings miss triggered a 25% price collapse? That’s absurd!” Yet, is this drop justified? Yes—because valuation elasticity is itself a major, even dominant, driver of stock price volatility. There’s a classic saying in the market: “In the short run, the stock market is a voting machine; in the long run, it is a weighing machine.” If this remains hard to grasp, consider another perspective: In our everyday experience, corporate development is typically continuous—not discontinuous or abrupt. It’s rare for a company to go from rock bottom one day to peak performance the next—even when it suddenly launches a breakthrough product. That product didn’t materialize out of thin air yesterday; its development was gradual. Thus, a company’s fundamental condition may change very little over a single quarter or half-year. Valuation, however, obeys no such logic. It can jump dramatically overnight—say, on the announcement of a new product—triggering an immediate, steep surge.

Profits surged ninefold, yet the stock price fell 40%! Behind Tianci Materials’ series of moves in July—does it signal a turning point in the lithium-ion battery sector, or is it a distress signal for risk mitigation?

The Fuding project involves a total investment of RMB 598 million, with a construction period of just 18 months, built via renovation and expansion of the existing plant site. Compared to building a greenfield facility in Nantong, this retrofit approach significantly reduces land acquisition and infrastructure costs. Moreover, Fuding enjoys maritime transport advantages, enabling simultaneous service to battery customers along China’s southeast coast and overseas export orders. Upon completion, the project is expected to generate average annual revenue of RMB 3.876 billion and average annual net profit of RMB 159 million. This strategic shift—halting expansion in Nantong while scaling up in Fuding—is grounded in a core logic: rather than investing capital in low-efficiency, geographically distant new capacity, it is more rational to allocate funds toward mature, customer-dense bases with strong industrial ecosystem synergies. Industry data shows that Tianci Materials shipped 720,000 tons of electrolyte in 2025, commanding a global market share of 32.2%—ranking first worldwide for ten consecutive years. The company has already signed medium- to long-term supply agreements with Guoxuan Hi-Tech, CALB, REPT, and ChuNeng New Energy covering 2026–2030, locking in over 2.945 million tons of orders—far exceeding current production capacity. The flip side of soaring profits: Quarter-on-quarter pressure and share price correction On the evening of July 9, Tianci Materials released its preliminary 2026 semi-annual earnings forecast: net profit attributable to shareholders is expected to range between RMB 2.7 billion and RMB 3.0 billion, representing year-on-year growth of 907.84% to 1,019.82%; non-recurring net profit is projected at RMB 2.65 billion to RMB 2.95 billion, up 1,029.57% to 1,157.44% year-on-year. This level of profitability already exceeds the company’s combined net profit attributable to shareholders for the past two years (RMB 1.846 billion). Yet beneath these stellar figures lies a less encouraging sequential trend. According to a Dongwu Securities research report dated July 10, the midpoint of Q2 net profit attributable to shareholders was approximately RMB 1.2 billion—a 28% decline quarter-on-quarter—mainly due to accruals for employee incentive expenses. Even excluding this one-off factor, underlying profitability still declined by roughly 20% sequentially. The primary reason lies in rising lithium carbonate prices pushing up raw material costs, while the market price of lithium hexafluorophosphate—the company’s flagship product—fell, creating a “scissors effect” that compressed per-ton profit margins. Even more striking is the stock price performance. Since hitting a near-term high of RMB 64.98 per share on May 6, Tianci Materials’ share price has trended downward continuously, closing at RMB 40.06 per share on July 10—a decline of approximately 38.35% over the period. This correction reflects multiple bearish catalysts: On June 29, CATL’s Jianxiawo lithium mine received official approval to resume operations, with an annual capacity of ~100,000 tons of lithium carbonate; concurrently, a lithium ore processing plant in Nigeria, West Africa, commenced operations, contributing ~30,000 tons of lithium carbonate equivalent annually. Rising lithium salt supply has stoked concerns about oversupply. Additionally, on July 8, an unofficial document titled “Summary of Solid-State Battery Technology Exchange Meeting”—dubbed a “micro-essay” in investment circles—circulated widely, claiming solid-state batteries would “completely eliminate” liquid electrolytes. This triggered a panic-driven sell-off across the entire electrolyte sector. Tianci Materials’ Secretary of the Board explicitly denied the claim, stating: “Liquid batteries continue to deliver strong annual sales growth and expanding application scenarios; solid-state batteries will not account for any substantial share within the next five years”—a view reportedly aligned with CATL’s own assessment. The truth behind cooperation with “King Ning”: Customer portfolio restructuring—not relationship breakdown In early June, CATL signed three-year electrolyte supply agreements with both Shenzhen Capchem (New Bund) and Yonten Technology, totaling 770,000 tons; it later added a supplementary 90,000-ton raw material agreement with Yonten. Meanwhile, Tianci Materials announced an upward revision of its total electrolyte supply commitment to ChuNeng New Energy—from prior levels—to 1.01 million tons.

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