Why Peabody Energy Crashed 16% a Day After Skyrocketing

What happened

Shares of Peabody Energy (NYSE: BTU) crashed 16% by noon EDT on Tuesday, tanking on a day the coal stock received an analyst upgrade and one day after skyrocketing.

Blame China.

So what

This morning, B. Riley raised its price target on Peabody Energy by $1 to $23 a share, stating it saw the company's preliminary results as a "positive step forward."

Peabody Energy reported its preliminary numbers for the third quarter yesterday, announcing its coal sales had topped $900 million to levels not seen in nearly seven quarters. However, the company still expects only low single-digit growth in revenue as it booked a loss of nearly $238 million on coal hedges and expects to report a net loss of $40 million-$60 million for the quarter.

Here's the thing: If Peabody Energy is unable to turn a profit even during a surge in coal prices, what can an investor expect to see from the mining company when coal prices lose steam?

A worried person studying a falling price chart on a laptop.

Image source: Getty Images.

After hitting all-time highs early today, coal prices in China later tumbled 8% after the state planner revealed its intention to intervene and bring down coal prices to reasonable levels, according to Reuters. China's National Development and Reform Commission announced Tuesday morning it had ordered more than 150 coal mines to boost production to help alleviate the power supply crunch in the nation.

The curbs on mining set by China earlier this year to combat pollution were among the biggest factors that drove coal prices higher. The latest reports reveal China's coal output just hit its highest level in 2021.

Now what

I stated yesterday that the market was evidently betting on higher coal prices and not Peabody Energy's preliminary numbers, as I didn't quite find the numbers exciting given the strong coal-price environment. The coal stock's sharp drop today supports my argument, which also means betting on Peabody Energy shares is speculative, as they could drop even lower if China's moves help cool down coal prices.

10 stocks we like better than Peabody Energy Corporation
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Peabody Energy Corporation wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of September 17, 2021

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More