SY

We rate So-Young International Inc. (SY) as a Hold with a composite score of 55.1/100 at a current price of $3.24. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in momentum (69th percentile) and investment (59th percentile), which together account for the majority of the composite score. Offsetting weakness in value (21th percentile) and stability (38th percentile) tempers our overall conviction. We assign a No Moat rating (27/100), High uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends; the path to profitability; valuation compression risk if growth disappoints. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

So-Young International Inc. holds a top-quartile position (#0 of 50) within the Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 55.1/100 places it at rank #1260 in our full 7,333-stock universe. At $12M in market capitalization, So-Young International Inc. is a small-cap player in the Services space, which limits certain scale advantages but may allow for more agile strategic execution.

Despite positive momentum (69th percentile), revenue contraction of -5% creates a divergence between price action and fundamental trajectory. This divergence suggests either that the market is looking through near-term weakness or that technical factors are temporarily inflating the stock. Investors should assess whether the revenue decline reflects cyclical weakness or structural challenges.

The margin cascade tells an important story: gross margins of 61% (+1.7pp vs sector) narrow to operating margins of -43% (-46.1pp vs sector) and net margins of -40.0%, yielding a gross-to-net conversion rate of -65%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $3.24, So-Young International Inc. is trading at a premium to fundamental value. Our value factor score of 21/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The premium valuation implies the market is pricing in significant future growth or quality improvements that are not yet fully reflected in current fundamentals.

The stock currently trades at P/B of 1.2x, P/S of 0.4x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a High uncertainty rating to So-Young International Inc.. Key risk factors include current negative profitability (net margin -40.0%), below-average price stability (38th percentile). The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: current negative profitability (net margin -40.0%); below-average price stability (38th percentile). Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 38th percentile and quality factor at the 48th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 61% provide a buffer against cost pressures; conservative leverage (4% D/E) limits balance sheet risk; a 7.47% dividend yield anchors total return. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate So-Young International Inc.'s capital allocation as Poor. Key concerns include low returns on equity (-127.7%), negative profitability, weak asset returns (ROA -85.9%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — So-Young International Inc. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, So-Young International Inc. receives a Hold rating with a composite score of 55.1/100 (rank #1260 of 7,333). Our quantitative framework assigns a No Moat (27/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 47/100.

Our analysis supports a neutral stance on So-Young International Inc.. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.