For ATRenew Inc DRC (NYSE:), a small-cap Chinese consumer discretionary stock, Q1 2025 was another quarter of strong growth and improved profitability. This company runs a tech-based platform for pre-owned consumer electronics. However, returns in recent years don’t reflect the impressive progress ATRenew has made. This sets up ATRenew to be a potentially fruitful investment going forward. The analysis below will break down ATRenew as a company and its past financial results to understand whether this stock has the ability to be successful going forward.
ATRenew: Device Recycling Platform That Has Key Partnerships with Chinese and U.S. Giants
ATRenew is a reseller of used consumer electronics and other goods, primarily operating in the Chinese market. The firm breaks down its business into two key areas: first party (1p) and third party (3p). 1P is the company’s self-operated business where it takes actual inventory of these products, which it receives through its AHS Recycle stores and online platform. This channel accounted for around 92% of total revenues last quarter. In 2024, AHS Recycle sourced around 72% of the gross merchandise value sold by ATRenew.
The company’s 3p business operates both a business-to-business and business-to-consumer platform that facilitates transactions of used electronics and goods. ATRenew earns money by taking a percentage of the total transaction value sold through these platforms. It is a much smaller part of the business, only accounting for 8% of total revenue last quarter. Still, these business lines work well together. They provide the firm with several ways to make money from the trading of used items.
The company notably has a close relationship with JD.com (NASDAQ: JD), China’s largest e-commerce company by revenue. JD integrates product trade-in solutions into its website. This drives a lot of traffic to ATRenew. JD is also the firm’s biggest shareholder. ATRenew is also just one of two companies that partners with Apple (NASDAQ:) for its iPhone trade-in business in mainland China. These are certainly very strong relationships to have as ATRenew looks to further expand its business.
ATRenew: Strong Growth, Profitability Gains, Solid Balance Sheet, Tiger Global Investment
One thing that immediately stands out about ATRenew when examining its financials is the company’s long-term track record of strong and consistent revenue growth. Since the company went public back in June of 2021, ATRenew has posted revenue growth of 15% or more in every single quarter. Additionally, in 15 out of those 17 quarters, revenue growth was at least 25%. In Q1, revenues grew by over 27.5% to $661.3 million.
The company has also made very significant improvements in profitability since 2021. That year, the firm’s adjusted operating margin was -11%. After Q1, the figure sits at 2.4% and increased by 21 basis points from Q1 2024. Although this number is still low, it is a far and away improvement from the negative double-digit range. Interestingly, the company’s adjusted operating margin is only around 110 basis points lower than JD.com, which generated around 63x more revenue than ATRenew last quarter. With this exponentially larger scale, one would expect the gap in these two firms’ margins to be much wider. This indicates that ATRenew may have a structurally stronger profitability profile. Thus, margins could expand substantially as the business grows.
These improvements in profitability also trickle down to the firm’s adjusted earnings per share (EPS), which were -$0.28 in 2021. That figure nearly inverted by the end of 2024, coming in at $0.26. Analysts are forecasting it to increase to $0.34 in 2025 for a growth rate of nearly 31%. The company also reported positive non-adjusted EPS for the third quarter in a row. It first reached this milestone in Q3 2024.
The company’s balance sheet also looks strong, achieving an operating income to interest expense ratio of 11x over the last 12 months. This means that the company’s operating income over that period was 11 times higher than the interest on debt and other loans it had to pay. Thus, the company had more than enough ability to service its debt. Additionally, the firm’s current ratio was 2.9 last quarter. This shows that its current assets exceed its current liabilities by nearly three times, a healthy figure. Its nearly $329 million in cash, cash equivalents, and short term investments, also exceeds its total debt of around $49 million very significantly.
ATRenew has a significant investment from Tiger Global Management, one of the most talked-about investment firms globally. Investors recognize Tiger Global as an early backer of companies like Alibaba (NYSE:) and TikTok owner ByteDance. As of Mar. 31, Tiger Global owned around 5% of ATRenew’s outstanding shares, a stake worth around $34 million. This may be a small part of Tiger Global’s $26 billion portfolio, but it shows strong bullishness in this stock. That’s not to say ATRenew will become Alibaba or ByteDance, but backing from Tiger Global is nothing to shrug off.
ATRenew: Significant Long-Term Recovery Possible If Execution Remains Strong
Despite ATRenew’s solid financial position and overall progress, shares have dropped 56% since the end of 2021, as of the close on May 29. However, the stock has been gaining momentum lately, up over 31% from its 2025 low in late-April as of the May 29 close.
Although ATRenew’s returns haven’t lined up with the progress the business is making, a quote from Benjamin Graham, often considered the father of modern investing, may be apt here. He said, “In the short run, the market is a voting machine; but in the long run, it is a weighing machine.” This quote intends to describe the idea that in the long run, markets tend to reward stocks with the valuation their earnings justify by improving their business. Warren Buffett has called Benjamin Graham’s 1949 book The Intelligent Investor “by far the best book on investing ever written.”
Ultimately, the stock’s lackluster returns come as its forward price-to-earnings (P/E) ratio has declined significantly. The figure is now at 6.5x. In October 2022, it was 19x. Its average forward P/E ratio is now around half of its 13x average over this period. This comes even though sales growth remains strong. The firm’s revenue growth rate last quarter only sits marginally below the 30% average quarterly growth rate achieved since Q4 2021.
ATRenew will need to continue making headway in increasing its margins. But, that doesn’t take away from the impressive progress it has made so far. ATRenew’s adjusted operating income increased by 39.5% year-over-year to $15.4 million. Adjusted operating margin reached 2.4%, indicating healthy progress compared to the first quarter of last year. These are very positive signs.
It is also important to consider the future of the Chinese economy. Although there are different views in the market on the pace of the Chinese economic recovery, consumption growth was solid at 5.1% in April. This comes as the Chinese government announced it is offering a market-wide 15% subsidy on many new smartphones, tablets, and smartwatches. The fact that ATRenew’s revenue growth came in at the high end of its guidance in Q1 shows that the trade-in program is delivering indirect benefits to the firm. The company is forecasting another strong quarter of growth in Q2 of 26% at the midpoint. ATRenew’s revenue growth has remained between 24% and 28% over the last four quarters, reflecting a level of resilience in its business model.
Also, a plethora of analysts, including those at Goldman Sachs, Nomura, and J.P. Morgan, have recently raised their estimates on China’s growth. This follows the agreement between the U.S. and China to pause tariffs. Overall, it appears there could be a significant opportunity for ATRenew shares to continue recovering long-term. This is especially true as the outlook on China’s economy is improving.