Here’s why the Xiaomi stock price rally has stalled

The Xiaomi stock price remained in a tight range this week as the recent momentum faded. It was trading at HKD 52.75 on Thursday, down by over 13% from its highest point this year, putting it into a correction zone. Will it resume the uptrend?

Xiaomi business is thriving

Xiaomi Corporation has silently become one of the biggest technology companies in the world. It has done that by disrupting the biggest companies like Apple and Samsung. 

Xiaomi has achieved that by targeting customers in China and the emerging markets, especially in India. Its brands like Redmi and Poco are known for having flagship quality at an affordable price. 

The company is now challenging Tesla, a company that disrupted the electric vehicle industry. It has already launched two hit vehicles and raised over $5 billion earlier this year to expand the business. 

The most recent results showed that Xiaomi’s business was thriving. Its revenue rose by 30% in the second quarter to RMB 116 billion, with its adjusted net profit growing by 75% to RMB 10.8 billion. 

Xiaomi’s two core businesses continued growing. The smartphone and its IoT segment made RMB 94.7 billion, up by 14.8% from the same period last year. 

Most only, the EV, AI, and other initiatives segment made RMB 21.3 billion, a 233% annual increase. Importantly, its gross margin of 26.4% was higher than the smartphone one of 21.6%.

The company believes that it is in its early days of growth, especially in the EV business, where it is initially focusing on the domestic market. It plans to start selling its EVs in Europe by 2027, where it plans to take on more established brands like Tesla and Volkswagen. 

The challenge, however, is that selling EVs in Europe will not be easy since its manufacturing plants are in China. As such, its EVs in Europe would face tariffs of up to 48%. The bloc has imposed a base tariff of 10% and levies ranging from 35% to 38% on other countervailing measures. 

Why the Xiaomi shares have stalled 

The Xiaomi stock price has remained under pressure in the past few months because of concerns that the smartphone business was slowing. This is happening because consumers are not replacing their phones as frequently as they did a while ago. 

In the past, it was common for customers to buy smartphones as soon as a new, upgraded model came out. Today, most of them stay with their phone until something breaks. Xiaomi now hopes to grow its market share in China by 1% each year. 

Xiaomi’s stock price has also stalled because of concerns about its valuation, which is higher than that of other companies in the industry. It P/E ratio of 25 is much higher than that of other top companies like Li Auto and BYD. 

Additionally, there are concerns that its EV ventures will meet with the reality of higher competition from other popular brands like XPeng and Nio.

Xiaomi stock price technical analysis

The daily timeframe chart shows that the Xiaomi share price has slumped from a high of H$61.50 in July to the current H$52.75. It formed a double-top pattern at $59.50 and a neckline at $36. Most recently, the stock has dropped below the 50-day Exponential Moving Average (EMA). 

Xiaomi stock has also formed a bearish flag pattern. Therefore, it will likely remain under pressure in the coming days. If this happens, it will drop to $40 and then bounce back later this year. 

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