Sanrio's Stock Is Down Far More Than Its Business — The "Why" Is Less Certain Than It Looks

Sanrio (TSE:8136) reported record FY2026/3 results on June 23 — revenue up 33.9% to ¥194.1bn, operating profit up 50.3% to ¥77.9bn, operating margin expanding from 35.8% to 40.1%. The stock has still fallen roughly 30–50% from its 2025 peak. Several explanations are circulating for why. Only some of them hold up against the actual timeline.

What Actually Happened to the Stock — and What’s Just a Theory

Sanrio hit an all-time high around ¥8,685 (pre-split) in August 2025, then declined steadily to roughly ¥4,500 by January 2026 — a decline that was already well underway before China’s Pop Mart, the company behind the “Labubu” blind-box craze, saw its own bubble burst from October 2025. Record Q3 results on February 12 (revenue +36.7%, operating profit +51.8%, guidance raised) brought a temporary bounce. In the week of March 27, ahead of the April 1 stock split’s record date, short-interest spiked and the margin ratio collapsed from roughly 34x to the low single digits — a technical, split-driven distortion, not a fundamental signal. Then on April 16, Sanrio disclosed a governance lapse (detailed below), and the decline accelerated from there.

Several Japanese financial outlets have since described Sanrio and Pop Mart trading in near lockstep over the trailing six months, both down roughly 30% from their respective highs, and attributed this to “guilt by association” — global investors grouping both under an “Asian character IP” label. That co-movement is real. But Sanrio’s own decline began months before Pop Mart’s bubble burst, and accelerated on a Sanrio-specific governance disclosure that has nothing to do with Pop Mart. The commercial relationship between the two is real but small: Pop Mart licenses Sanrio characters, including Hello Kitty, for its own blind-box products — making Sanrio a minor IP supplier to Pop Mart, not a competitor, with no capital tie and almost certainly immaterial licensing revenue against ¥194bn in group sales. A second explanation circulating — deteriorating Japan-China relations weighing on Sanrio given China’s roughly 20% share of sales — is plausible in direction but not independently verifiable from outside the companies involved. We’d rather say plainly what we can’t confirm than dress up a tidy narrative as settled fact: there isn’t a single, well-evidenced explanation for the size of this selloff. What is well evidenced is what we cover below.

The Valuation Reset Is Real, However You Explain the Cause

Sanrio’s PER peaked near 39x and PBR near 13.3x around FY2025/3; both have since compressed to roughly 20–22x and 7.5–8.3x — closer to FY2022/3 levels, even as earnings kept climbing. Regardless of which narrative you believe about the proximate trigger, that’s a real multiple compression against a still-growing earnings base, not a reflection of weaker fundamentals. It’s worth being precise about what “cheap” means here, though: those multiples are low relative to Sanrio’s own recent history, not low in absolute terms against the broader Japanese market.

The Real Question: Does Overseas Take Root?

Here’s where the more interesting risk sits, independent of what caused the selloff. Sanrio’s re-rating over the past few years was substantially an overseas growth story — president Tomokuni Tsuji’s strategy since taking over in July 2020 has been to move past Hello-Kitty-only dependence toward a diversified character portfolio with global reach, including a stated target of growing North American market share from roughly 3% to 10% over a decade. The actual regional numbers this fiscal year tell a more cautious story:

*Europe’s profit decline reflects a one-time consolidation timing adjustment, not a demand problem.

This year’s growth engine is Japan — new domestic stores, theme park renewals, and anniversary campaigns for Kuromi and My Melody — not the overseas expansion the market re-rated the stock for. North America, the most mature overseas market and the one carrying the 10-year share-gain target, grew revenue just 0.4%. The company’s own filing attributes this directly to “uncertain conditions stemming from changes in the macro environment, centered on tariff policy, since July 2025.” Europe and South America are growing fast off small bases — encouraging, but not yet proof of durable scale.

The Governance Lapse Is a Data Point on This Exact Question

On April 16, Sanrio disclosed that a managing director who also served as CEO of its US subsidiary had received undisclosed additional compensation — a “cost-of-living” bonus, university tuition, and housing costs — totaling $1.68m (~¥252m) between 2023 and 2026, approved informally within the subsidiary rather than through the proper board and compensation-committee process. The director resigned; the president returned 30% of salary for three months; the fix going forward includes ending the practice of parent-company directors also running overseas subsidiaries and creating a direct subsidiary-CFO-to-Tokyo reporting line.

It’s worth being precise about what kind of problem this is. This was one executive taking compensation he wasn’t entitled to — closer to individual misconduct than evidence the company runs a dishonest business. Nothing here touches the integrity of the financial results, the products, or customer-facing operations, and the sum is trivial against ¥77.9bn in operating profit. It isn’t a value-destroying event in itself. What it does usefully show is that the control infrastructure for overseas subsidiaries — the same infrastructure “does overseas take root” depends on — let one executive bypass formal approval for three years before an internal whistleblower caught it. The company moved to an audit-committee board structure in June 2025, just before this surfaced, and the whistleblower process and special-committee investigation that followed both worked as intended. The gap was specifically at the international-subsidiary layer, and it’s now being addressed rather than denied.

The Dividend Side, Post-Split

Sanrio executed a 1-for-5 stock split effective April 1, 2026. On a pre-split-equivalent basis, the annual dividend is still growing: FY2026/3 paid ¥69.00/share (pre-split); FY2027/3 guidance of ¥16.00/share post-split equates to ¥80.00 pre-split-equivalent, a roughly 16% increase in line with profit growth, under a stated policy of a 30%-plus consolidated payout ratio. At the current post-split price near ¥940, that forecast works out to a dividend yield of roughly 1.7% — unremarkable, and a reminder that Sanrio is priced as a growth-and-licensing story rather than an income stock.

Where This Leaves the Stock

None of this changes the fact that Sanrio’s core business — Japan-led, character-licensing-driven, and now diversified beyond Hello Kitty — is genuinely healthy and growing. What it changes is the framing: this is a domestic-demand company that earned a growth re-rating on an overseas story which is still a seedling, not a tree, and whose recent stock decline has more confirmed causes (a governance lapse, split-related trading mechanics) than confirmed ones (Pop Mart contagion, Japan-China relations) circulating in the financial press.

On a split-adjusted basis, the stock is now trading back near the level it fell to in January — before the governance disclosure, and before most of the narrative explanations now being used to justify the price even existed. That’s a useful anchor: the business has only gotten bigger and more profitable since then, while the price has round-tripped to roughly the same spot. The governance lapse was real but contained — an individual compensation issue, not evidence the company itself deals dishonestly with customers or shareholders, and one its own internal controls and whistleblower process ultimately caught. The overseas friction — North America’s tariff-driven stall, the bumpiness in Europe and South America — looks less like a red flag than the normal turbulence of a domestic-demand company still learning to operate at global scale. None of that is nothing, but none of it is a reason to think the business itself is worth less than it was a year ago.

Whether it’s a buy depends less on resolving exactly why the stock fell, and more on a question this year’s numbers can’t yet answer: does North America reaccelerate once tariff uncertainty clears, or was the share-gain target always more aspiration than trajectory. That’s the number worth watching next quarter — and at a price back near its recent low on a business that’s still growing and still paying a rising dividend, the risk/reward of waiting for that answer looks more favorable than the headlines suggest.

Source: Sanrio FY2026/3 Earnings Release (TDnet) | 日本語版

Disclaimer | This article is for informational purposes only and does not constitute investment advice.