Viomi Technology's Long-Term Growth Potential: Can Revenue Growth Offset Capital Inefficiency and Investor Skepticism?

Viomi Technology (NASDAQ:VIOT) has emerged as a standout performer in the home appliance sector, with its first-half 2025 financial results showing a 76.6% year-over-year surge in net revenues to RMB1,477.6 million ($206.3 million), driven by robust demand for its home water systems. This growth, however, must be weighed against a backdrop of declining returns on capital and mixed investor sentiment. To assess the company's long-term potential, we must dissect whether its revenue momentum can counterbalance these headwinds.

Financial Performance: A Tale of Two Metrics

Viomi's revenue growth is undeniably impressive. Its home water systems segment alone contributed RMB1,058.3 million in revenue, up 84.8% year-over-year, reflecting a strategic pivot toward high-margin, in-demand products. Net income also rose by 64.7% to RMB120.4 million, with a net margin of 8.2% in H1 2025, signaling improved profitability.

Yet, gross margin contraction from 31.0% to 26.5% raises concerns about pricing pressures or product mix shifts. More critically, Viomi's return on capital employed (ROCE) has plummeted from 22% to 10% over the past five years, while its return on equity (ROE) stands at a modest 12.3% according to past data. This decline suggests that the company's ability to generate returns from its invested capital has weakened, a red flag for long-term sustainability.

Capital Efficiency: A Mixed Bag

While ROCE trends are troubling, Viomi's return on invested capital (ROIC) of 12.05% as of late 2025 outperforms its weighted average cost of capital of 7.2%. This excess return indicates that the company is currently deploying capital effectively, albeit from a lower base than in prior years. Additionally, its return on assets (ROA) of 2.5% in December 2024 suggests improved asset utilization.

However, historical context is key. Viomi's net income turnaround-from a RMB89.3 million loss in 2023 to RMB62.3 million in 2024-was driven by cost-cutting and strategic refocusing. While this bodes well for near-term resilience, the question remains: Can the company sustain these gains without a meaningful improvement in ROCE?

Investor Confidence: A Fragile Foundation

Investor sentiment toward Viomi is deeply divided. On one hand, institutional investors have shown cautious optimism. Acadian Asset Management and Renaissance Technologies increased their holdings in 2025, while the company's $20 million buyback program signals management confidence. On the other, the stock's recent 5.18% price drop and a "Sell" consensus rating from analysts highlight lingering skepticism.

Analysts have raised the one-year price target to $5.10, a 96% premium to the current price of $2.60. This optimism is tempered by technical indicators suggesting a potential 100% downside over the next 12 months according to market forecasts. The stock's volatility underscores the tension between Viomi's revenue growth and its capital efficiency challenges.

Strategic Reorganization: A Path Forward?

Viomi's pivot to home water systems appears to be paying off, with the segment accounting for 71.6% of total revenues in H1 2025. This focus on a high-growth niche could insulate the company from broader consumer durables sector headwinds, which have seen earnings decline at an average annual rate of 17.7% according to past trends. However, scaling this strategy will require disciplined capital allocation-a challenge given the company's historical ROCE trends.

The buyback program and institutional inflows suggest that some investors believe Viomi is undervalued. Yet, with a "Sell" rating from analysts and a stock price trading below its 52-week high, the market remains wary. This disconnect between fundamentals and sentiment could persist until Viomi demonstrates consistent improvements in capital returns.

Conclusion: A High-Risk, High-Reward Proposition

Viomi Technology's revenue growth and strategic reorganization present a compelling case for long-term investors. The company's ability to capitalize on the home water systems market and its improved ROIC offer a foundation for future gains. However, the declining ROCE, weak analyst ratings, and stock price volatility underscore significant risks.

For Viomi to realize its full potential, it must not only sustain its revenue momentum but also reverse its capital efficiency decline. Until then, the stock remains a high-risk bet, suitable for investors with a high tolerance for volatility and a belief in the company's ability to execute its strategic vision.