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    Is Xiaomi Corporation's (HKG:1810) Stock's Recent Performance A Reflection Of Its Financial Health?

    Simply Wall St·06/23/2025 22:05:45
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    Xiaomi's (HKG:1810) stock up by 3.5% over the past month. Given its impressive performance, we decided to study the company's key financial indicators as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Xiaomi's ROE in this article.

    ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.

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    How To Calculate Return On Equity?

    ROE can be calculated by using the formula:

    Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

    So, based on the above formula, the ROE for Xiaomi is:

    13% = CN¥30b ÷ CN¥240b (Based on the trailing twelve months to March 2025).

    The 'return' is the profit over the last twelve months. So, this means that for every HK$1 of its shareholder's investments, the company generates a profit of HK$0.13.

    See our latest analysis for Xiaomi

    What Has ROE Got To Do With Earnings Growth?

    We have already established that ROE serves as an efficient profit-generating gauge for a company's future earnings. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

    A Side By Side comparison of Xiaomi's Earnings Growth And 13% ROE

    To start with, Xiaomi's ROE looks acceptable. Especially when compared to the industry average of 7.0% the company's ROE looks pretty impressive. This probably laid the ground for Xiaomi's moderate 5.4% net income growth seen over the past five years.

    When you consider the fact that the industry earnings have shrunk at a rate of 2.6% in the same 5-year period, the company's net income growth is pretty remarkable.

    past-earnings-growth
    SEHK:1810 Past Earnings Growth June 23rd 2025

    The basis for attaching value to a company is, to a great extent, tied to its earnings growth. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is 1810 fairly valued? This infographic on the company's intrinsic value has everything you need to know.

    Is Xiaomi Using Its Retained Earnings Effectively?

    Xiaomi doesn't pay any regular dividends, meaning that all of its profits are being reinvested in the business, which explains the fair bit of earnings growth the company has seen.

    Conclusion

    On the whole, we feel that Xiaomi's performance has been quite good. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. Having said that, looking at the current analyst estimates, we found that the company's earnings are expected to gain momentum. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company.