To The Moon

Xiaomi Corporation ($XIAOMI-W(01810)) saw significant share price movement during recent months on the SEHK, rising to highs of HK$22.80 and falling to the lows of HK$16.48. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Xiaomi's current trading price of HK$16.48 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Xiaomi’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

What is Xiaomi worth?

The stock seems fairly valued at the moment according to my valuation model. It’s trading around 2.6% below my intrinsic value, which means if you buy Xiaomi today, you’d be paying a reasonable price for it. And if you believe the company’s true value is HK$16.92, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Xiaomi’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Xiaomi generate?$(SEHK:1810)$ Earnings and Revenue Growth January 27th 2022

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by a double-digit 18% over the next couple of years, the outlook is positive for Xiaomi. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder?It seems like the market has already priced in $XIAOMI-W(01810)$ ’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor?If you’ve been keeping tabs on $(1810)$, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. When we did our research, we found2 warning signs for Xiaomi(1 is a bit unpleasant!) that we believe deserve your full attention.