Wall Street loves a good fad-to-flop story. When a company explodes onto the global scene selling premium vinyl toys in mystery boxes, it practically invites skepticism. So when Pop Mart International saw its explosive growth show signs of friction early this year, the short sellers smelled blood in the water. They piled in, betting heavily that the craze surrounding the company's signature jagged-toothed monster doll, Labubu, was headed for a brutal, Beanie Baby-style collapse.
There is just one problem with that narrative. The short sellers are losing money.
Despite a wave of negative sentiment, price-target cuts, and high-profile worries over the company's long-term sustainability, Pop Mart shares have climbed 8% from their April lows. With short interest hovering at a hefty 12.67%, the bears are stuck in a costly, crowded trade. They are betting against a business that refuses to roll over, trapped by high borrow fees and a valuation floor that makes further downside a tough hill to climb.
Understanding why this short thesis is failing requires moving past the superficial "fad toy" headline. This situation reveals a distinct disconnect between the mechanics of short interest and the reality of global retail execution.
The Bear Case That Looked Perfect on Paper
To understand why short sellers are trapped, you have to look at what lured them into the position in the first place. On March 25, Pop Mart dropped its latest financial results. The numbers showed that the Labubu-led "The Monsters" series had ballooned to account for roughly 40% of the company's total revenue, up from 23% the previous year.
To a financial analyst, that looks like a massive single-point-of-failure risk. If the global market tires of Labubu, a massive chunk of Pop Mart's revenue vanishes overnight. Investors panicked, and the stock plummeted more than 22% in a single trading session.
Data from alternative tracking firms added fuel to the fire. Reports surfaced showing that Pop Mart's US sales growth had cooled dramatically, dropping over 40% in March and April compared to the hyper-growth peaks of late 2025. Meanwhile, inventory turnover days crawled upward by 21%, reaching 123 days by the end of the fiscal year.
Armed with these metrics, short sellers loaded up. Total short positions grew rapidly, with borrowers shorting over 123 million shares. Put options volume spiked to record highs. The bears assumed the trend line would continue straight down to zero.
The Mechanics of the Short Trap
Shorting a stock isn't free. You have to borrow the shares from an institutional lender, sell them, and hope to buy them back later at a cheaper price to return them. When a massive number of traders all try to execute this exact strategy on the same stock, the pool of available shares to borrow shrinks.
This brings us to a metric called utilization. Pop Mart's utilization rate skyrocketed alongside its short interest. When utilization is extremely high, it means nearly all the shares available for lending are already being used to back short positions.
This creates two massive headaches for short sellers:
- Escalating Fees: Lenders charge premium interest rates to borrow highly demanded shares. Just holding the short position eats away at potential profits every single day.
- Short Squeeze Risk: If a bit of positive news hits the market and the stock ticks upward, short sellers face a frantic scramble to buy back shares to close out their positions. Because there are very few shares left to borrow, that buying pressure feeds on itself, driving the stock price up even faster.
The 8% rebound from the April lows is a direct warning shot to these short positions. The bears didn't factor in how expensive it would be to wait out a collapse that isn't happening on their timeline.
Why the Toy Value Narrative Flips the Script
Short sellers treated Pop Mart like a dying tech startup or a fraudulent micro-cap. They ignored the fundamental valuation floor.
When the stock bottomed out after the earnings rout, it traded at roughly 10.3 to 14.8 times forward earnings. Compare that to its historical three-year average of 24 times earnings. For a company still pulling in billions in revenue with a global footprint, a P/E ratio near 10x is incredibly cheap. It is the kind of valuation usually reserved for stagnant, old-economy manufacturing firms, not a brand expanding its presence in places like New York's Times Square and London.
Pop Mart's management team also knew the stock was cheap. Instead of sitting on their hands, they deployed a classic defensive corporate maneuver: a massive share buyback program.
The company bought back roughly HK$1.3 billion worth of its own shares following the March crash. When a company aggressively buys its own stock, it accomplishes two things. It signals extreme confidence to the market, and it physically removes shares from the open market, reducing the float and making it even harder for short sellers to find shares to cover their bets.
The Fallacy of the One Hit Wonder
The core of the short thesis relies on the idea that Pop Mart can't survive past Labubu. It is a view that misunderstands how intellectual property works in the designer toy space.
Pop Mart doesn't operate like a traditional toy company that relies on a single movie tie-in. It functions more like a record label or a fashion house. Before Labubu took over the world in 2025, characters like Molly and Dimoo were the primary cash cows. Pop Mart has a proven pipeline for rotating characters into the spotlight as consumer tastes shift.
Management has been explicit about this. They have openly characterized 2026 as a "pit stop" year. The goal right now isn't to chase unsustainable 300% growth spurts; it is to consolidate their massive global gains, optimize their supply chains, and diversify their intellectual property portfolio.
Even with the reported US slowdown, non-Labubu products still make up about 50% of Pop Mart's American revenue this year. The company is actively pushing newer characters like Twinkle Twinkle to fill any void left by cooling Labubu demand. Meanwhile, they are building out a broader entertainment ecosystem, working with Sony on a Labubu film and operating a physical theme park in Beijing to transform these figures from temporary trends into permanent cultural fixtures.
How to Handle This Shift as an Investor
If you are looking at Pop Mart right now, looking at retail hype isn't enough. You have to monitor the underlying corporate metrics. The battle between trapped shorts and an aggressive management team creates specific areas you need to watch.
Keep Tabs on Secondary Market Pricing
Collectibles live and die by scarcity value. Check platforms like StockX or specialized toy trading apps. If rare, limited-edition Pop Mart figures are still commanding premium resale prices over their retail list price, the brand health is intact. If secondary market prices fall below retail across the board, that is your signal that consumer fatigue has truly set in.
Monitor the Progress of the Supply Chain
Pop Mart added a production site in Mexico to stabilize its North American supply chain and lower shipping friction. Watch the upcoming quarterly reports to see if this move successfully brings down that 123-day inventory turnover metric. If inventory days fall back toward double digits, it proves management is managing the "pit stop" effectively.
Track the Borrow Fees and Utilization Rates
For those tracking the short angle, use data tools to watch the cost to borrow Pop Mart shares. If utilization stays near 100% and borrow fees remain high, the upward pressure on the stock will persist. Any positive earnings surprise or surprise product launch will trigger a rapid exit from the shorts, driving a sharp upward move.
The short sellers wanted a quick, dramatic collapse to cash out on. Instead, they found a profitable, well-capitalized business willing to buy back its own shares to protect its valuation. Betting against cultural trends is fine, but betting against basic math and cheap valuations is how traders get burned.
