Xiaomi – Smartphone Manufacturer Xiaomi – GuruFocus.com

The smartphone is one of the most used devices in the world, and many people can no longer do without this device. Thanks to its countless features, this technology enables people to perform many activities such as communicating, working, applying for jobs, recording videos, taking pictures, playing virtual games, trading on the stock market, making digital payments, and much more. Even in the developing world, smartphones are popular as they instantly grant people an economic advantage over those who don’t have these useful devices.

Therefore, the demand for smartphones is destined to continue growing. According to Statista.com, smartphone shipments should reach nearly 1.5 billion units in 2023. This will be a jump of more than 18% from 2020. The development of 5G infrastructure and the introduction of more innovative models will drive the demand for smartphones up all over the world.

The Chinese market has the largest addressable population in the world. According to IDC, the Chinese smartphone market is expected to grow 5% overall in 2021. This will follow the slight contraction in shipments that was observed in the second quarter.

One company expected to benefit from the growth in demand for smartphones in the Chinese market is Xiaomi Corp (XIACF, Financial) (XIACY, Financial). a smartphone manufacturer. A recent industry survey conducted by Canalys, a leading global technology market analyst, shows that in the first quarter of 2021, Xiaomi became one of the top four largest smartphone manufacturers in the People’s Republic of China.

According to the report, the company holds a market share of nearly 15% after growing 74.6% year over year, surpassing Huawei, another large Chinese smartphone manufacturer, in the ranking. Furthermore, the company’s internet user base nearly reached 120 million monthly active Chinese users, which increased by nearly 7% from the final quarter of 2020. These numbers gave a boost to Xiaomi’s overall performance in the first quarter of 2021. As a result, the company saw its total revenue hit $11.7 billion and its adjusted net profit grew an astonishing 164% year over year to $1 billion.

The company is enriching its devices with innovative technologies to improve photo and video due to the popularity of social media. It is also aiming to give its devices the ability to stay online 24/7, so the company is also developing features that will enable rapid heat dissipation and increased charging capabilities. These will improve the overall performance of the product which, together with an affordable price per unit compared to competitors’ products, makes Xiaomi’s smartphones very competitive on the market.

The balance sheet looks robust enough to support the company’s investments. As of March 31, it had $5.2 billion in cash and equivalents and $3.2 billion in debt. The interest coverage ratio of 5.58 indicates the company doesn’t have any problems in paying interest expenses on current debt outstanding.

The stock was trading at $16.60 per share (for the XIACY listing) and $3.30 per share (for the XIACF listing) on Aug. 3. The market capitalizations were $83.13 billion and $83.57 billion, respectively.

The price-earnings ratio is approximately 20.75 versus the industry median of 24.12, while the price-sales ratio is 2 versus the industry median of 1.53. Given the low price ratios and strong growth potential for the company, I believe the stock is trading near or below its intrinsic value.

Disclosure: I have no positions in any security mentioned.