The Hong Kong-listed stock is trading at 38 times forward earnings estimates, about double the level for Tencent Holdings Ltd. and even above US giants including Apple Inc. Xiaomi’s shares have surged around 340% from a February 2024 low, adding more than $130 billion to its market value.
The company won investors over by duplicating its smartphone success in China’s crowded EV market. Now it needs to show that its share performance is justified, amid market caution over the firm’s ability to execute lofty growth plans and maintain its sales trajectory.
“The current valuation is approaching a level that prices in near-perfect execution,” according to Bing Yuan, a fund manager at Edmond de Rothschild Asset Management. “There should not be much surprise” in results for the EV business but there is potential for strong smartphone numbers, driven by higher prices, she said.
The planned summer launch of its Tesla-like YU7 model will be a “critical test” of Xiaomi’s ability to scale production to meet demand, said Yuan, who was an early bull on the company’s entry into China’s competitive EV market.
An SUV would be a milestone for the $10 billion EV endeavor led by Xiaomi’s billionaire founder Lei Jun. Investors will be closely watching the specifications and pricing for the 5 meter-long pure electric SUV, with larger vehicles gaining popularity across China.
How fast Xiaomi can ramp up capacity is a top question, with analyst checks suggesting consumer wait time for delivery will be over seven months. The company has said it’s aiming to meet its delivery target of 300,000 vehicles this year. Earlier this month, Lei told local media that reducing the wait time was a priority.
The stock faces a nearer term challenge with results due March 18. Consensus is calling for 43% growth in fourth-quarter sales, the highest in three years. The average estimate for 12-month forward earnings per share has risen 18% this year.
Options traders are pricing in a 7.4% move in either direction for the shares after the results, compared with an average gain or drop of 3.3% following its past eight quarterly reports. Volume has jumped, with total outstanding put and call contracts reaching the highest level since June 2021 as of Thursday.
Xiaomi shares gained as much as 3.3% in Hong Kong on Friday amid broader market optimism that Beijing will roll out more policy support to boost consumption.
Key points to watch include “the company’s market share gains, R&D spend and most importantly its outlook on AI integration and autonomous driving,” said Jing Shi, emerging equities investment manager at Pictet Asset Management. Shi says the stock is “still within a fair valuation range” given the company’s prospects.
Others echo Edmond de Rothschild’s Yuan in expressing reservations.
The implied forward price-to-sales multiple for Xiaomi’s EV business at more than 5 times that of local rivals including BYD Co. and XPeng Inc. “may warrant caution,” Bloomberg Intelligence analyst Steven Tseng wrote in a note. “Xiaomi’s EV growth could normalize from 2027, and the lofty expectation leaves little margin for error.”
