Xiaomi Stock Analysis Tells Many Interesting Stories!

Now, I was researching some Asian stocks and you cannot not look at Xiaomi. The company is in everything, smartphones, artificial intelligence of things, electric vehicles, but the stock is down 50%. So, we have to look at it from an investing perspective, but there is also very interesting narrative related to it because it's connected to everything, to Asia, electric vehicles, artificial intelligence, smartphones, the way we live, the market, the price, the risk and reward. So, it's a very interesting story. If we look at the business, everything looks okay. They have their place in the world. They have been hit a little bit by increasing memory prices for their smartphone devices. However, they are investing for them big money, 40 billion renminbi, approximately 6 billion US dollars. And keep in mind, this is an Asian company that invests similarly to what Tesla invests and has also similar business model to Tesla. Of course, Xiaomi has a market cap of 32 billion dollars. The stock is down 50%. If it would be priced like Tesla, electric cars, devices, robots, gadgets, that has a market cap of 1.1 trillion, Xiaomi would be priced at approximately 3 to 5 trillion if Elon Musk would buy this. So, that would be a way for Elon to make a few trillion. He can buy Xiaomi at 30 billion, get it revalued to 3 trillion. And Elon, I just made you 3 trillion. If he gives me a few billion for this advice, you know where to find me, on this YouTube channel, Elon. Anyway, they're also into AI models, token usage. They are doing well. They are competing with all the other players. However, that's exactly the key message here when it comes to AI competition. When I look at all the opportunities that I can use for AI, there will be a price war. The return on investments will likely be terrible. We will be using AI. It will change the way we are living, but the investments will make it a bubble. Not technological bubble, investing bubble. That will have terrible repercussions. And we see it here. The confirmation is here. With a 30 billion market cap, they are doing well. Other players don't even get to 30 billion of revenues, have market caps of trillions. Everybody has an AI agent. In the recent bets discussion, we discussed Caspy. Even they have a Casper new AI agent. Everybody has one. Maybe I should make one, too. Yeah. Embodied intelligence, Xiaomi robotics, very much applicable, things like that. So, we'll see where it will go. They are scaling, integrating, increasing the number of stores where they will be able to sell you everything. Smartphones, not cheap anymore as they had to increase their prices because of memory cost increases, but they still have their position number two, number three, number four. So, still doing well. They managed to increase average sales prices significantly by 25%. That has helped a bit, but sales are still down. Their global user base is growing. Tablets also, wearables. However, they are not Apple. As much as they try to be, they are not. And we see that in the decline in revenues from smartphones and the impact of memory prices hitting them. But, there is more. There is EV, AI. They are growing into delivery of cars. However, when it comes to electric cars, my car is now getting old, 250,000 km. I'm looking a little bit. And if they say that this is good, 25% value loss after a year of owning a pure electric vehicle, that's not good. I'm looking at some cars 3 years old, minus 50% with 20,000 km on them. That might be true value investing. We'll see what car will I buy. Anyway, the Xiaomi situation is one the competition is high in each of their segments. And they are not Apple to be capable to price a premium. If something is a commodity, it gets ugly. By the way, Apple, yes, everything great, but it also has a P ratio 46. And perhaps another interesting story, I did analyze Apple on March of 2016, discussed it for the next 40 years, said it was a buy. I did buy it in March 2016. And the key factor there was the the P ratio was nine. And then I assumed the P ratio of 15 going forward on much higher earnings per share. Uh stock price was different then because of the splits later. But, the message here is that even great companies do trade at P ratios of nine here and there. And that's another story to discuss here. Xiaomi, Apple, as value investors, we don't need to own everything all the time. We can be selective about owning what we want to own at the right price. So, P/E ratio of 36 for Apple, P/E ratio of 19 for Xiaomi. Yes, it's relatively cheaper, but do I need to own it? No, I can simply wait for a P/E ratio of nine. Tencent is at a P/E ratio of 15, Process at nine. So, you can always wait for these opportunities, and then the risk and reward of investing is much different, and that's it. That's the key story. Xiaomi can go up when it comes to the stock, can go down, but the P/E ratio of 19, let's say fairly priced, it's not tend to be an absolute bargain. If we look a little bit at the revenues, first, decline in revenues after a lot of years of growth, and now the market is worried. Nevertheless, net income down significantly. They even issued common stocks to likely invest into their AI narrative. Revenues by category down on the smartphones, growing on the other things, somewhere stable. However, net profit down significantly, and that's what we are seeing trickling down. So, all else equal, another quarter, the P/E ratio will be 25 and not 19 when this Q3 goes to normal. Nevertheless, they are doing buybacks. Okay, then issuing shares, not okay. But, Xiaomi is the Asian player. It is investing in everything. They will be competitive globally. Again, it says more about the general environment of AI, electric vehicles, autonomous vehicles, even robotics. What is it priced for? If I look at DBS's projections, they are just projecting growth, growth, growth, no matter what. So, this is just a pause year, and then we go back to 20% growth. They put a PE ratio of 25 for their price target in the future, and then yes, the stock is cheap, you should buy it, and we just keep on partying along. That works until it doesn't, until there is a proper crisis, an Asian crisis. We haven't had those for a while, but when those come, then we come in and look for PE ratios of nine. It is priced as it is. Will it be revalued on growth? Everyone is banking on AI growth. From where it will come, that's something we still have to see. We don't like to invest in green bananas. Shift towards GPUs, cool looks in revenue will lift margins, everything will look great. That's what analysts are saying, but it might also not happen. To me, it doesn't really look like the profits are still coming. Might be coming, but it might also not happen. And then you have another revaluation ugliness, and that's something, trust me, I learned over the years. You don't want to be in when it comes to Asian stocks. The key question is, what if the growth stalls? Then we get to this situation, PE ratio of nine. And it might grow, but it also might not because of the huge competition that we have seen now when discussing Xiaomi. That's related to all the companies, to the Teslas, to the AI, Open AIs, everyone, which is very interesting. But for us value investors, we will just watch from the sidelines, wait for those PE ratios of 10, not buying promises, buying real cash flows. Until then, there will be something else for us. Thanks for watching.