The Puzzle of RLX’s Valuation

For many investors, price-to-earnings (P/E) ratios are a simple yardstick: the higher the number, the more “expensive” the stock looks relative to its profits. By that logic, RLX Technology Inc. (NYSE: RLX)—China’s e-vapor leader—should be struggling to attract market optimism. With a P/E ratio that often looks stretched compared to peers, RLX doesn’t exactly scream “value stock.”

And yet, optimism persists. Retail investors chatter about upside potential, contrarian analysts whisper about resilience, and the stock occasionally rallies despite the regulatory cloud hanging over it. So why does optimism endure even in the face of elevated multiples? Let’s break it down.

P/E in Context: Why It’s Not the Whole Story

A P/E ratio is a snapshot, not a full movie. For RLX, a high P/E reflects compressed earnings more than sky-high prices. After regulation forced e-cigarette makers under China’s State Tobacco Monopoly, margins were squeezed and growth slowed. Earnings fell, but the stock didn’t collapse to zero—so the ratio ballooned.

This leads to a paradox: RLX looks expensive by P/E, but that “expensiveness” reflects temporary earnings pressure, not speculative mania. Investors who remain optimistic argue that once earnings normalize, the P/E will look far more reasonable.

Why Optimism Still Exists

1. Dominant Market Share in China

Despite regulation, RLX remains the clear leader in China’s e-vapor industry. Investors see scale as a buffer—if anyone can survive and adapt in a state-controlled market, it’s the largest player. This dominance underpins confidence that RLX has staying power, even if growth is slower.

2. Regulatory Stability Could Be a Tailwind

Markets hate surprises. The worst of the regulatory storm hit in 2021–2022, when RLX was forced into compliance with state pricing and distribution models. Today, rules feel more predictable. Even strict regulation looks “better” to investors if it stays consistent. Optimists argue RLX has already absorbed the biggest shocks.

3. Consumer Loyalty

On the ground, RLX still has a strong brand. Many Chinese consumers prefer RLX for quality and reliability compared to grey-market alternatives. That kind of loyalty often translates into resilience that financial statements can’t fully capture yet.

4. Speculative Appeal

Let’s be honest: part of RLX’s optimism comes from trader psychology. Stocks under $5 are magnets for retail speculation. To many, RLX looks like a cheap lottery ticket—the idea that a double or triple could happen if just one catalyst breaks right.

Elevated P/E as a Signal of Survival

Here’s another way to look at it: RLX’s elevated P/E ratio is not just about stretched valuations—it’s about investors pricing in survival.

The logic goes like this: if RLX were doomed, the stock would trade near zero. Instead, it trades with a premium multiple, signaling that investors believe the company will outlast the regulatory crackdown and eventually grow again. The optimism isn’t about today’s earnings, but tomorrow’s.

Analyst Sentiment: Cautious but Not Hopeless

Analysts remain split. Many keep “Hold” ratings, reflecting the risks of regulatory pressure and elevated multiples. But some contrarians point to RLX’s cash reserves, dominant market share, and potential product diversification as reasons the stock may be undervalued relative to long-term potential.

A few analysts even argue that RLX is at an inflection point: the worst is priced in, and even modest improvements in margins or growth could make today’s P/E look misleadingly high.

Social Media Sentiment: Betting on the Underdog

On Reddit, StockTwits, and Twitter/X, RLX often pops up in threads about “China recovery plays” or “undervalued penny stocks.” Retail investors acknowledge the risks but frame RLX as a comeback story:

• “The government already did its worst.”
• “This stock is dead money until it isn’t.”
• “If RLX survives, it thrives.”

It’s the classic underdog narrative: people root for resilience, even when numbers say otherwise. That sentiment—however emotional—helps sustain optimism.

Forward-Looking Catalysts

For optimism to turn into tangible returns, RLX needs catalysts. Here’s what investors are watching:

Earnings Stability

If RLX posts a few quarters of steady profitability, the P/E ratio will start to shrink naturally. Stability could shift the narrative from “overvalued” to “misunderstood.”

Product Diversification

Expansion into adjacent categories—wellness vapes, herbal inhalers, or even international pilots—could unlock new growth stories. Investors love a fresh narrative.

Regulatory Transparency

Even small signals from Beijing suggesting no new restrictions could lift sentiment. In China, no news can be good news.

Technical Breakouts

A rally past the stubborn $3 resistance level with strong volume could reignite speculative optimism and attract momentum traders.

Risks That Could Crush Optimism

Of course, optimism could evaporate quickly. The bear case includes:

• Further regulation tightening, erasing margin gains.
• Stagnant growth, leaving the stock in limbo.
• Weak institutional interest, keeping liquidity thin.
• Earnings misses, which would make the high P/E harder to justify.

If any of these materialize, the narrative could shift from “survivor” to “value trap.”

The Human Element

Behind the ratios and analyst notes, RLX is still a company of people trying to adapt. Engineers innovate within tight boundaries, marketers build loyalty under state control, and executives attempt to prove resilience to skeptical investors. That human effort matters—it’s what keeps optimism alive.

When investors see teams fighting to survive, it resonates emotionally. That’s why even with an elevated P/E, some are willing to hold on—because the human story suggests possibility.

Final Thoughts: More Than Just a Number

So, why does optimism persist for RLX despite elevated P/E ratios? Because markets don’t trade math alone—they trade narratives, psychology, and belief in resilience.

RLX’s high P/E isn’t just a warning sign; it’s a reflection of a market that still sees potential. Investors are essentially saying: “We’re willing to pay up now because tomorrow could look better than today.”

Whether that optimism pays off depends on the next set of catalysts. But one thing is clear: sentiment is keeping RLX alive, even when numbers say otherwise.

For now, optimism isn’t irrational—it’s the bet that RLX’s story isn’t finished yet.