Stockwatch: coming of age as a global consumer technology share

How refreshing to see in this company a combination of factors lost from the UK stock market nowadays, and where US technology can be grotesquely overpriced. Strong top-line revenue growth, high margins, mass-market capability, gaining global reach, cutting-edge design, winning devices through the budget to premium range, generating substantial cash, investing well and also buying back its shares.

• Invest with ii: Buy International Shares | Most-traded US Stocks | Top UK Shares

Such is Xiaomi Corp Class B (SEHK:1810), a Beijing-headquartered and Hong Kong-listed company, which is evolving from a strong position in smartphones – it’s the world’s third-largest supplier – to electric vehicles (EVs). It is timely to review the company’s progress as it launches two “flagship” phones, the Xiaomi 15 and 15 Ultra, and also its president, William Liu, declaring an intent to start selling EVs outside China in the next few years.    

Following the successful launch of the SU7 sedan a year ago, last week Xiaomi launched its first premium EV in China – the SU7 Ultra, starting at an equivalent price of £57.5k and 35% lower than initially promoted. The emerging intent is to compete head on with the likes of Tesla Inc (NASDAQ:TSLA) and Porsche (XETRA:PAH3). It coincides with a rebellion against Tesla already under way in the US following Elon Musk’s controversial behaviour after his inclusion in Donald Trump’s administration.

The latest launch, of the 1,527 horsepower SU7 Ultra, has attracted 15,000 orders in 24 hours and is billed by one reviewer as the “Porsche-slaying” answer to the Taycan. Unique aerodynamics beat the Taycan’s downforce by 30%. This mirrors the leap in standards I recognise in Xiaomi as a smartphone user. While only a budget model, its battery longevity has been supreme and after four years I barely detect change - only heavy use of the camera and/or Google Maps requires an end-of-day charge.

Key financial metrics maturing

Xiaomi made £1.4 billion equivalent net profit in the first half of 2024, helped by 30% like-for-like revenue growth, on a 21% gross margin and near 6% operating margin, both increasing. Research & development spending rose 23% to constitute 6.5% of revenue and there are no dividends.

• India vs China: the battle of the two biggest emerging markets
• Why China funds are bouncing back
• ii view: Apple’s holiday quarter breaks records

With smartphone revenue up nearly 25% to 57% of group total, this shows how tricky it can be assuming much from “industry studies”. I recall several suggesting the smartphone market had matured even some years ago. The growth rate is before considering a latest boost from the Chinese government, which since last 20 January has been offering consumers a 15% subsidy on electronics devices, capped at £55 equivalent, for those under £650 equivalent.   

Why Xiaomi is notable is its proof of ability to pivot towards EVs – launching a top-end vehicle just as it hits Apple Inc (NASDAQ:AAPL) and Samsung Electronics Co Ltd DR (LSE:SMSN) hard with 2025 flagship phones. I am thinking in terms of capability to adapt and innovate as a global multinational over the long term.

It explains why the stock is performed strongly - a classic and bullish, long-term “bowl” pattern on the chart leading to sharp gains:

Source: TradingView. Past performance is not a guide to future performance.

The trailing price/earnings (PE) multiple looks to be around 34x versus 38x for Apple, hence broadly there has already been “catch-up” even if long-term growth is what will count. Take your pick as to whether US tech-valuations are riskier than China generally, as international trade conflicts kick off.

I drew attention to Xiaomi in May 2021 as an emerging mass-market consumer technology group that appeared to offer a better risk/reward profile than US technology shares. “For the next decade versus Apple: Buy.” As a long-term pick, at HK$25.85 this was on the mark, albeit premature in share price terms. Apple sustained an upwards-volatile chart from around $128 to around $245 currently:

Source: TradingView. Past performance is not a guide to future performance.

Both these consumer technology plays have doubled over four years or so. However, Xiaomi involved much greater volatility, dropping close to HK$9 by October 2022, then embarking on a steady climb and soaring from last year. In simple terms this explains the modest PE differential, on market risk as shown.

Yet it also shows and underlines how a “stop loss” approach can be particularly unhelpful with emerging growth companies – whose underlying trajectory can be at odds with the shares’ trend.

True, the financial summary table shows a 2022 break in the growth trend, revenue slipping also in 2023, but pivoting adeptly to EVs looks like a strong new driver in all respects, alongside excellent progress in smartphones.

Xiaomi Corporation
summary income statements
Billion Chinese renminbi
Year to 31 Dec

Source: Xiaomi Corporation annual reports.

Mind, Chinese innovation in smartphones is now exceptionally vigorous: rivals such as Honor, Oppo, Vivo and OnePlus. Xiaomi had a 14.1% share of the domestic Chinese market in the first half of 2024, up only 1.1% on the year. It was actually the Latin America, Southeast Asia and the Middle East where market share growth was strongest, averaging over 3% with Xiaomi ranked third. The Chinese competition needs watching but in terms of Xiaomi leveraging itself as a multinational it appears superior.

First-half 2024 revenue derived 46% from overseas, with Xiaomi smartphones ranking among the top five across 67 countries. If these consumers are as satisfied as I am with the smartphone experience, it is a lead-in to persuading us to consider a Xiaomi EV.

Direct US sales remain prohibited, mind, despite Apple selling in China and President Trump complaining about skewed trade terms. So, unless the US opens up – possibly a futile hope while the current US administration is in place – it is necessary to temper hopes for Xiaomi as a global multinational.

Smarthome appliances grew first-half revenue by 40.5%  

This is another growth segment to watch within the “internet of things” and lifestyle products side. For example, air conditioning, washing machines and refrigerators, alongside a wide range of “smart” items from sunglasses to luggage and electric scooters.

Marketing is adept, for example, March buyers of the Xiaomi 15 smartphones get a free Pad 7 tablet worth £369 and equivalent to an iPad, plus cut-price accessories. This aids adoption of the brand more widely among consumers.

2025 earnings growth estimates of 25-50%

This forecast includes contributions from 37 analysts. Hopefully, my update here conveys how tricky it is to project the dynamics at this key time of Xiaomi tilting towards EVs – a major opportunity, but competitive too. It adds to the speculative element with projections, but you could also say it is a hallmark of a successful growth company.

Ongoing strength in smartphone sales comes as a surprise versus overall predictions, but less so considering Xiaomi’s quality and price pitches through the budget to mid-tier and flagship ranges.

• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis
• Where pro fund buyers are investing their ISAs in 2025

On a price/earnings to growth (PEG) basis – the classic benchmark for growth shares – a circa 30x trailing PE should reduce significantly, the forward underlying earnings growth rate even possibly greater than the PE, where below 1.0x conveys value.

I draw your attention to Xiaomi’s marketing and technology prowess, with an ability to adapt as a key intangible for stock selection. While there could be short to medium-term downside on Trump-related market chaos, recalling my 10-year perspective I retain: Buy.

Edmond Jackson is a freelance contributor and not a direct employee of interactive investor.