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li car (NASDAQ:LI) shares are down 9% in 12 months. As such, the company’s share price has held up quite well compared to some of its peers.
However, the current $25 share price is well below the $41 level reached last summer after the launch of the much-anticipated L9 SUV.
So why do I think investors should buy Li shares?
the best performer
There are several exciting emerging EV companies in China, including Li, CHILDand Xpeng. While all three companies have exciting long-term growth prospects, particularly NIO with its unique battery swapping technology, Li is the first to appear financially sustainable.
Earlier this week, the automaker reported adjusted earnings per share of 13 cents on fourth-quarter revenue of $2.56 billion. This was considerably more than expected. Analysts forecast earnings of 7 cents a share on revenue of $2.6 billion.
It had been widely regarded as the first for the Chinese EV maker to turn profitable, and the fourth quarter proved it.
Solid data from China
China’s economy is expected to grow 5.2% this year. At least that was the forecast of the International Monetary Fund at the beginning of the year. Analysts are raising their estimates higher and higher as Chinese economic data is surprisingly strong.
Last week, China’s Purchasing Managers’ Index data came in at 52.6 in February, up from 50.1 in January, according to the National Bureau of Statistics. This represented the fastest growth in factory activity in 11 years.
As such, analysts expect economic growth of more than 6% in 2023.
Good beginning of the year
Nio, Xpeng and Li Auto posted increases in monthly deliveries in February. Li Auto delivered 16,620 vehicles to buyers during the month, up 9.8% from January and 97.5% more than February 2022.
However, it is important not to read too much into this monthly increase. Part of the uptick could be explained by the fact that Lunar New Year landed in January 2023. In 2022, the holiday landed in February. Businesses normally suspend their operations during the holiday period.
strong buy for me
Let’s start with the valuation. No one wants to buy expensive stocks and Li trades with an EV/sales ratio of 2.8. That’s broadly in line with its Chinese peers, but far less than its American peers. industry leader tesla it operates with an EV-to-sales ratio of 7.2. This suggests that the fair value could be significantly above the current level.
However, it is important to remember that investors will likely prefer Tesla, a profitable US stock, over Chinese newcomer Li, especially given geopolitical tensions. And it’s worth noting that geopolitics and trade wars could continue to affect stock prices. But, I still see valuation as a huge advantage.
We then turn to the strength of the company’s offering. The L9, the company’s second car, is an impressive vehicle. The SUV comes with two electric motors and one gasoline, with a range of 1,100 km.
It is competitively priced within the high end of the $70,000 market. It offers a wealth of technology, including sizable infotainment screens controlled by 3DToF hand/finger tracking cameras. I think it could be a real winner wherever it’s sold.
And finally, CATL, the main supplier of Li batteries, reportedly offers deep discounts to key customers. This could really help margin growth in 2023. That’s why I’m buying more shares of Li Auto.
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