Sotheby’s Stock Drops 25% After Tepid Sales in Hong Kong, N.Y.

Sotheby’s shares have lost a quarter of their value in the past month, a much steeper decline than this volatile stock has seen during any of the critical spring auction periods of the past five years.

The closing price of $40.46 on Tuesday represented a 25.6 percent decline from a 3 1/2-year high of $54.41 on April 5. Sotheby’s gained yesterday to close at $41.95, making the decline about 23 percent.

After falling as low as $6.47 on March 6, 2009, the auction house came back strongly starting late that year and rode its recovery to the April peak. Then the stock got hit hard by disappointing sales in Hong Kong and New York.

“The expectations were getting higher and higher and it was reflected in the stock price,” said Jason Benowitz, portfolio manager at Roosevelt Investment Group Inc., one of Sotheby’s major shareholders which bought the stock in the beginning of 2010 for a price in the low $20s.

In March, a Chinese vase estimated to fetch $800 to $1,200 soared to $18 million at Sotheby’s, becoming the most expensive lot among a dozen Asia Week auctions in New York.

“That story began to change during the last days of the Hong Kong auctions in April where the results were within the estimate range, not exceeding them,” Benowitz said.

The Hong Kong auctions brought in $447 million, a 75 percent increase from last year’s total, said William F. Ruprecht, Sotheby’s president and chief executive officer, during a teleconference with investors last week.

‘First Crack’

Still, Hong Kong saw a major setback with the Meiyintang Collection, marketed as one of the greatest private collections of imperial Chinese porcelain in the world. It brought in $51.2 million including fees, below the $91 million to $137 million presale estimate. Even with some pieces selling privately after the auction, the $88.4 million total fell short of the low estimate.

“That was the first crack in the bubbly confidence that characterized the Asian buying until then,” said Vikram Mansharamani, author of “Boombustology: Spotting Financial Bubbles Before They Burst.”

The stock responded by dropping 5 percent and closing at $50.96 on April 7.

About 20 percent of the recent decline occurred since the auction house’s major evening sales of Impressionist, modern and contemporary art, which began on May 3.

The company sold $170.5 million of Impressionist and modern art, close to the low end of the presale range of $159 million to $230 million. A week later, an evening contemporary art sale totaled $128.1 million, just over the low presale estimate of $120 million. Both results were the smallest for a New York evening sale in those categories in two years.

‘At the Low End’

“People have come to expect they will continue to deliver the tremendous results they have been,” said Benowitz. “In this case, the results were at the low end of the estimate.”

Smaller margins resulting from the need to compete with rival Christie’s may also have contributed to the weakness of Sotheby’s stock, analysts said.

“We see some deals that seem proffered by competitors, which don’t make sense to us,” Ruprecht said during the teleconference discussing its first quarter results last week.