Li Auto's share value experienced a 6% surge.
Li Auto's share value experienced a 6% surge.
Chinese electric vehicle manufacturer Li Auto (LI) saw a 6% rise in its shares, reaching a peak by 11 a.m. ET on Monday. This surge could be partly attributed to China's economic stimulus plan, aimed at revitalizing the economy and boosting demand for electric cars and various consumer goods. Consequently, several Chinese stock investments have been performing well.
However, significant portions of Li Auto's share price growth can be attributed to Citigroup's decision to increase its price target on the company's stocks for the second time in a week.
Understanding Citigroup's repeated price target adjustments
Last Tuesday, Citi analyst Jeff Chung upgraded Li Auto's price target from $21.60 per share to $25.50 - a 18% increase. The recent increase from $25.50 to $29.60, although not as large, is grounded in a new rationale. Chung believes that an upcoming Tesla Robotaxi event will enhance the visibility of electric vehicles in China, which coincides perfectly with China's peak "car sales season."
Should you buy Li Auto stocks?
While Li Auto's shares have been experiencing consistent growth as Chung raised his price target, it's essential to approach this investment with caution. Despite the price target increase, Chung remains ambivalent about Li Auto stock being a viable buy. He cites Li's aging vehicle catalogue and intense competition from peers as potential setbacks. As a result, Chung rates Li Auto stocks as "neutral" and believes they are adequately priced – not a great value to purchase at this time.
I can't help but share this sense of skepticism.
On a positive note, Li Auto currently boasts a substantial cash flow. Currently, the stock's price is only 10 times the trailing free cash flow, which is half its valuation against GAAP net earnings of 20. However, analysts surveyed by S&P Global Market Intelligence predict a decline in free cash flow for this year. Additionally, long-term development estimates stand at just 10%, limiting the stock's potential for growth on a 20 P/E ratio. Labeling this stock as "fairly priced" at this point may be generous.
Given Citigroup's increased price target for Li Auto's stocks, investors might consider exploring opportunities in the company's finance sector for potential investing opportunities. The upward revision in Citigroup's target signifies a positive outlook on Li Auto's financial performance, largely influenced by the anticipated visibility boost of electric vehicles in China.
However, it's crucial to evaluate the company's financial health beyond just the price target. While Li Auto has a substantial cash flow and a favorable price-to-cash flow ratio, analyst predictions of a decline in free cash flow this year may warrant further consideration. This perspective emphasizes the importance of thorough research and a balanced approach when considering investing in Li Auto.