A Look at Xiaomi (SEHK:1810) Valuation After Strong Third Quarter Earnings Surprise

Xiaomi (SEHK:1810) turned heads with its third quarter earnings report, revealing substantial year-over-year gains in both sales and net income. Investors are eyeing what these results might signal for the company’s outlook.

See our latest analysis for Xiaomi.

Xiaomi’s earnings surprise comes at a time when its share price has seen some turbulence, with the stock down 17.8% over the past month and off 27.5% in the last quarter. Still, the bigger picture is far more compelling, with a 33.4% total shareholder return over the past year and a remarkable 301% total return over three years. This suggests that long-term momentum is firmly in its corner even as short-term sentiment shifts.

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With expectations running high after Xiaomi’s latest results, the real question now is whether the recent pullback leaves the stock undervalued or if the market is already factoring in all of its future growth potential.

Most Popular Narrative: 39.5% Undervalued

The most widely followed narrative points to an ambitious fair value of HK$62.94 for Xiaomi, which is well above the latest close of HK$38.08. This assessment suggests the stock’s recent weakness stands in sharp contrast to its future potential, setting the scene for bold growth assumptions and strategic moves worth a closer look.

The company's successful push into premiumization, evidenced by growing sales of high-end smartphones, appliances, and electric vehicles, along with the launch of proprietary 3nm chips and advanced AI features, supports higher average selling prices and improves net margins as Xiaomi captures greater value per customer.

Read the complete narrative.

Want to know what drives this eye-catching fair value? There is a pivotal wager on expansion, product upgrades, and bigger profits baked in. The projected leap hinges on Xiaomi scaling premium offerings and margin gains rivaling global leaders. Curious about which financial leaps make this target possible? Dive deeper to uncover the bold assumptions behind the headline valuation.

Result: Fair Value of $62.94 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, investors should note that slowing smartphone demand and intensifying price competition could challenge Xiaomi’s ability to sustain its impressive profit growth.

Find out about the key risks to this Xiaomi narrative.

Another View: What Do Earnings Ratios Say?

Shifting focus to earnings ratios, Xiaomi trades at 20.5 times its earnings. This is above the peer average of 17.1 but below the Asian tech industry average of 22.3. The fair ratio is 22.5 times earnings, which implies the stock may be undervalued but not without some risk. Could the market be missing something, or is this a sign to look closer?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Xiaomi Narrative

If the story above does not fit your take or you want to dig into the details firsthand, you can easily craft your own Xiaomi narrative in just minutes: Do it your way

A great starting point for your Xiaomi research is our analysis highlighting 3 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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