Hikvision Stock Down 50%+ From 2015 Peak

While Hikvision is busy preparing for world domination, it faces increasing challenges at home in China. Last week, Hikvision announced weakened profits. Now the company's stock continues to fall, down over 8% today and more than 50% from its peak in mid-2015.

In this note, we examine Hikvision's stock rise and fall, analyzing its impact to the global video surveillance industry.

Peak

At its peak last year, Hikvision's market capitalization was ~$30 billion USD, trading at an astounding 10x revenue valuation and having a market valuation roughly equal to the rest of the global video surveillance industry combined.

Fall

From 8 months ago, Hikvision's stock has fallen ~53% from 52.30 down to 24.20 today.

First there was a sharp fall in the early summer, with further notable declines in the past 2 months.

Note: The Chinese government suspended trading in Hikvision's shares for 2 months in 2015 as represented by the flat line in the middle of the chart.

China Stock Wild Swings 

Hikvision is not alone here. The Chinese stock market has swung wildly over the past year.

Here is Hikvision's stock chart since last January (2015):

The boom was in the first half of 2015, with Hikvision's stock price now being lower than when 2015 started, despite massive 2015 revenue growth of ~50%.

Fears of the Chinese Economy

The main concern is the future of the Chinese economy. As China has admitted itself [link no longer available], 2015 was its slowest growth in 25 years. On the other hand, China emphasizes that growth is still extremely high by world standards (a reported 6.9%) and that they are stabilizing economic performance in a 'new normal [link no longer available]'. As the fall in stock prices show, many are skeptical of China's statistics / GDP numbers. 

Government Struggling Supporting Stock Prices

The Chinese government has been working had to defend / hold up stock prices, restricting Chinese executives [link no longer available] from sell shares in their own companies, buying shares themselves (the 'National Team [link no longer available]'), restricting short selling [link no longer available], the abject failure of stock market 'circuit breakers [link no longer available]', etc.

Unfortunately, these efforts have not been working and it is unclear at what point / price level the Chinese government can stabilize the fall.

Hikvision Impact

A booming stock price has many benefits, from acquisitions, to raising further equity (e.g., the indefinitely postponed Hong Kong IPO), to company expansion.

The bigger concern is weakness inside Hikvision's core China market, partly from less consumer / corporate wealth due to falling stock prices but also the risk of the 'new normal' economy holding back or eliminating the vast infrastructure projects since 2008 that has propelled Hikvision to be the biggest video surveillance company in the world. China's government has made it clear that they are moving to more of a consumer [link no longer available], rather than investment driven economy, but how far China goes could significantly impact Hikvision's core market / profit generator.

Further Fall?

Even after the steep fall, Hikvision's market capitalization is still ~$15 billion USD, ~4x their 2015 sales. If they continue to grow at 50%+ and maintain 25% net margins, Hikvision's stock is an absolute steal.

On the other hand, even Dahua last year only grew sales ~15%. If Hikvision comes down to this level and their profit margins decline (due to a tougher Chinese market and the challenges of Western expansion), Hikvision's stock price could easily fall far further as ~4x sales valuation is still fairly rich.

Ultimately, though, so much of Hikvision's future rests on the fate of the Chinese government / economy and it remains to be seen whether it makes a 'smooth landing', 'hard landing [link no longer available]' or 'crash landing'.