Xiaomi’s Stock Plunge Defies Strong Operational Results

The market's reaction to Xiaomi's recent performance presents a puzzling scenario for investors. Despite announcing a landmark achievement—the first-ever profitability of its electric vehicle division—the company's shares have experienced a significant downturn. This divergence between robust operational success and declining share value raises questions about current market sentiment and whether this creates a potential buying opportunity.

Xiaomi's core business metrics provide little cause for concern. The company's third-quarter report revealed impressive growth, with group revenue expanding by more than 22 percent year-over-year. Even more striking was the performance of the net profit figure, which saw an adjusted increase of 80.9 percent.

The electric vehicle segment specifically delivered extraordinary results, with revenue surging by nearly 200 percent compared to the previous year. Most significantly, the Smart EV division reached profitability far sooner than industry observers had anticipated, generating an operating profit of 700 million RMB. This early financial success in the capital-intensive automotive sector represents a notable achievement against competitors who typically absorb years of losses in new vehicle divisions.

Should investors sell immediately? Or is it worth buying Xiaomi?

Explaining the Market's Pessimistic Stance

Despite these strong fundamentals, Xiaomi's stock has faced substantial pressure. Over the past month, the equity has declined by approximately 17.8 percent and currently trades well below its 50-day moving average. Several factors appear to be driving this negative sentiment:

• Share Dilution Concerns: The company disclosed plans to issue nearly 29.4 million shares as incentives for employees and service providers. This allocation, valued at over 1.1 billion HKD, effectively dilutes existing shareholders' stakes.
• Cautious Analyst Outlook: Financial institutions including JPMorgan have expressed reservation, moderately reducing their price targets. The prevailing view suggests that the timing for bargain hunting may not yet be appropriate.
• Profit-Taking Activity: Following substantial gains in preceding months, many investors appear to be capitalizing on positive news to secure returns, creating downward pressure on the stock.

Management Confidence Contrasts with Market Jitters

Xiaomi's leadership remains undeterred by the market's nervous response, demonstrating confidence through revised upward guidance. The company has increased its full-year 2025 electric vehicle delivery target from an initial 350,000 units to 400,000 vehicles.

This contrast highlights a fundamental disconnect: while Xiaomi has eliminated a major operational risk by achieving profitability in its auto business, the market currently appears focused on short-term dilution effects. The stock may be undergoing a correction phase, yet operationally the company stands on stronger footing than at any previous point. Whether market participants will soon recognize this strengthened fundamental position remains to be seen.