Burning Rock Biotech Ltd. Sponsored ADR Class A(BNR.US): The stock price has surged more than 160% in July, is the market betting on a turnaround in profit expectations?

From April to now this year, the cumulative increase of the Nasdaq index of US stocks has reached 21.73%. Without any surprises, it should be able to achieve a monthly "four consecutive rises" in July. While the index is recovering upwards, the stock price of Burning Rock Biotech Ltd. Sponsored ADR Class A (BNR.US) has also stopped falling and rebounded rapidly during this period. Especially since July, as of July 24th, the monthly cumulative increase of Burning Rock Biotech Ltd. Sponsored ADR Class A's stock price reached as high as 164.87%, with the maximum increase reaching 202.91%, significantly outperforming the index. Such an increase easily reminds investors of Burning Rock Biotech Ltd. Sponsored ADR Class A's rally in November last year, when the company's stock price doubled in one month. And on July 23rd this year, the stock price of Burning Rock Biotech Ltd. Sponsored ADR Class A rose 41.42%, with an intraday increase approaching 60%, breaking the record of the single-day stock price increase of 25.12% on November 27th last year. The highest stock price even broke through the previous high to reach $9.48, setting a new stock price high in nearly 18 months. This undoubtedly makes investors more excited for the valuation recovery process of Burning Rock in the future, but on the other hand, the short-term overheated sentiment in the market is also a factor that investors must be cautious about. The background behind the more than 40% increase in stock price in a single day It can be observed that after consecutive monthly declines of 30% in March and April this year, Burning Rock Biotech Ltd. Sponsored ADR Class A, which already lacked liquidity, once again approached the brink of liquidity depletion. On April 28th, the stock trading volume was only 8,972 shares, with a turnover rate of only 0.19%. On May 5th, the stock price of Burning Rock Biotech Ltd. Sponsored ADR Class A fell by more than 13%, but also from that day, a fund began to slowly inject into Burning Rock Biotech Ltd. Sponsored ADR Class A. On May 5th, the company's trading volume increased to 152,400 shares, and in the following 2 trading days, it expanded to 159,600 shares and 282,300 shares. At this time, Burning Rock Biotech Ltd. Sponsored ADR Class A was in a consolidation phase at the bottom, after a long period of decline, the trading volume decreased to the bottom. The stock price fluctuated less and less, with a lack of trading activity. At this point, when the trading volume suddenly increased, it to some extent signaled the signal of main funds entering the market. However, when Burning Rock Biotech Ltd. Sponsored ADR Class A's trading volume again broke through to 291,700 shares on May 14th, its main funds did not choose to directly rally, but continued to buy at the low of the box. Burning Rock Biotech Ltd. Sponsored ADR Class A also began a period of horizontal oscillation in June. In June this year, the company's stock price only increased by 1.94%, maintaining an extremely stable sideways effect. Buyers were able to suppress the market with part of their chips during this process, while also absorbing selling pressure chips, keeping most of the chips locked in the buying zone. And during this period, the average daily trading volume of Burning Rock Biotech Ltd. Sponsored ADR Class A clearly decreased, except for obvious stock price increases and volume changes around June 12th, where the daily trading volume rarely exceeded 50,000 shares, indicating that there were few sell-orders in the market and a large number of chips were accumulated at the low level. In the stock price rally in July, the main funds of Burning Rock Biotech Ltd. Sponsored ADR Class A changed their slow style with a continuous rising momentum during the rally. Generally, main funds that adopt a rapid rising approach usually have strong financial strength, and have collected enough chips at the early low positions to achieve a high level of control over the market. For example, on June 24th and June 25th, Burning Rock Biotech Ltd. Sponsored ADR Class A closed up by 2.19% and down by 1.45%, respectively, with only 4,428 shares and 1,597 shares of daily trading volume, respectively, indicating the high level of main funds' control over the market. Moreover, due to the high level of control by the main funds, the stock price rally of the company did not require a large amount of capital to enter the market, resulting in a "volumeless rise" phenomenon: from June 30th to July 22nd, Burning Rock Biotech Ltd. Sponsored ADR Class A had only 2 trading days with a volume over 30,000 shares. And during this rally, the main funds did not choose significant pullbacks or mid-term washout positions, allowing Burning Rock Biotech Ltd. Sponsored ADR Class A's stock price to soar in one month, saving the main funds both in terms of capital and time, and opening up more room for growth. Looking at the distribution of chips, on June 25th, a low peak dense pattern below $2.68 began to form for Burning Rock Biotech Ltd. Sponsored ADR Class A. With the appearance of a volume breakthrough on July 23rd, the chips were fully turned over, and the stock price surge reached an unprecedented level. On July 23rd, Burning Rock Biotech Ltd. Sponsored ADR Class A's stock price soared significantly by 41.42%, with a trading volume of 588,700 shares that day. Looking at the flow of funds on that day, on July 23rd, while the stock price was rising significantly, a portion of Burning Rock's short-term chips were fully turned over, with a net outflow of $78,200 in funds on that day. On the next day, mid-to-small sized orders became the main entry for Burning Rock. Usually, mid-to-small sized orders represent the trading behavior of retail investors. Although the volume per transaction is small, their frequent entrances demonstrate the market's level of activity. On July 24th, in the trading funds of Burning Rock Biotech Ltd. Sponsored ADR Class A, a net inflow of $84,400 in funds was recorded, with mid-to-small sized orders totaling a net buy of $67,600. Turning losses into profits in the market game? In fact, there has been no "big news" recently to support Burning Rock's stock price increase of over 40% in a single day, but as the mid-report season approaches after the end of July, it may be a good point for the market to preemptively speculate on companies' turnaround expectations. It is understood that when Burning Rock Biotech Ltd. Sponsored ADR Class A was listed, it mainly promoted its "in-house + out-of-house" dual-track growth model, However, as the business gradually deepened, the focus of Burning Rock Biotech Ltd. Sponsored ADR Class A's business has shifted entirely towards the in-house model in recent years. In their view, the in-house model has incomparable competitiveness. In previous financial reports, Burning Rock Biotech Ltd. Sponsored ADR Class A mentioned "once the in-house laboratory, equipment, and system are in place, we will regularly sell our test kits to them, thereby creating high barriers to entry and high customer loyalty." In other words, Burning Rock Biotech Ltd. Sponsored ADR Class A believes that the in-house business model is more stable and may also have a higher profit margin. Since the second half of 2022, Burning Rock has been vigorously promoting its in-house channel, and the revenue gap between in-house and out-of-house businesses has begun to shrink. By the third quarter of 2023, the company's in-house channel revenue exceeded out-of-house channel revenue for the first time. Since then, the company's in-house revenue has consistently exceeded out-of-house revenue, ultimately driving its overall testing revenue structure to achieve its first annual turnaround in 2024. And thanks to continued cost control measures, Burning Rock Biotech Ltd. Sponsored ADR Class A's profit situation has also improved in recent years. For example, in the first quarter of 25Q1, Burning Rock Biotech Ltd. Sponsored ADR Class A achieved revenue of 133 million RMB, a year-on-year increase of 5.94%. After deducting Non-GAAP gross profit minus Non-GAAP sales and general administrative and management expenses, the company achieved a profit of 32.1 million RMB in the quarter. So far, Burning Rock Biotech Ltd. Sponsored ADR Class A has achieved profit for five consecutive quarters (Non-GAAP GP-SG&A) and has shown a continuous upward trend. Looking at Burning Rock's profit situation in 25Q1, Under the cost control strategy, the company's net loss attributable to common shareholders in 25Q1 was 13.5 million RMB, a significant reduction of 88.89% year-on-year. If the trend of narrowing net losses from the first three quarters of last year continues, Burning Rock does have the potential to achieve a final turnaround in 25Q2, which would undoubtedly be a key milestone for Burning Rock Biotech Ltd. Sponsored ADR Class A.