Xiaomi Group’s price-earnings ratio is close to the Internet giant Tencent Holdings and Alibaba Group. When Xiaomi releases its third-quarter earnings today, its valuation will become clearer.
Xiaomi will release its third-quarter earnings report on Monday night. Once done, the investors will pay attention to whether their Internet service business has achieved growth and how much revenue contribution came from hardware. Xiaomi founder Lei Jun said that Xiaomi is an innovation-driven Internet company, but in the past two quarters, the Internet service business only accounted for 9.2% of total revenue. At the same time, the smart devices contributed more than 70% of revenue. Lei Jun has promised to keep the profit margin of smart devices below 5%.
Since Xiaomi landed in Hong Kong Stock Exchange in early July, investors who were skeptical about their vision have pulled Xiaomi’s share price down 23%. However, 18 of the 24 analysts surveyed granted Xiaomi shares ‘buy’ or a similar rating. The analyst’s average target price for Xiaomi means that Xiaomi’s share price will have nearly 50% growth in the next 12 months. As of 9:32 Beijing time on Monday, Xiaomi shares rose 0.8% to 13.04 Hong Kong dollars.
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Kaiyuan Capital, an investment consulting firm, believes that for investors, it is still not a good time to start. ‘The stock may still be overvalued, but more worrisome is the disconnect between management’s public comments and the company’s performance,’ said Brock Silvers, managing director of Kaiyuan Capital. ‘Management at times has been less than fully convincing in its explanation of Xiaomi’s strategy, and the market is still looking for results to support those views.’
Some investors who are optimistic about Xiaomi believe that Xiaomi’s valuation is at an attractive level, and investor concerns about the company are misplaced. Xiaomi’s share price is 21 times higher than the expected earnings for the next 12 months, 14 times higher than Apple’s, and nearly 26 times that of Tencent and Ali.
Citigroup included Xiaomi in the study last week and awarded it a ‘buy’ rating. Citi believes that the valuation of Xiaomi does not reflect its market advantage. Citigroup analysts William Yang and Andre Lin said in the report that these advantages include opportunities in overseas markets and the ability to attract customers with low-cost smartphones, thus providing a huge supply of Internet services. However, they also said that due to the short time to market, Xiaomi stocks are at greater risk.