LI AUTO INC - ADR (NASDAQ:LI) – An Undervalued EV Stock Worth Considering

LI AUTO INC - ADR (NASDAQ:LI) stands out as an undervalued stock with solid fundamentals, making it an interesting candidate for value investors. The company, a key player in China’s electric vehicle (EV) market, combines reasonable growth, strong profitability, and a financially stable position—all while trading at an attractive valuation.

Valuation – Priced Below Peers

LI’s valuation metrics suggest the stock is trading at a discount compared to industry peers:

• P/E Ratio: At 24.55, LI’s P/E is lower than 78% of its competitors in the automobile sector.
• Forward P/E: The forward P/E of 12.16 is significantly cheaper than the industry average of 48.25.
• Enterprise Value/EBITDA: 94.6% of industry peers are more expensive on this metric.
• Price/Free Cash Flow: 86.5% of competitors trade at higher multiples.

The stock also has a low PEG ratio, indicating that its earnings growth potential is not fully reflected in its price.

Profitability – Strong Margins and Returns

LI’s profitability stands out in the competitive EV space:

• Profit Margin: At 5.56%, it outperforms 89% of industry peers.
• Operating Margin: 4.86%, better than 81% of competitors.
• Return on Equity (ROE): 11.33%, ranking in the top 11% of the sector.
• Return on Assets (ROA): 4.95%, also among the best in the industry.

These metrics suggest efficient operations and strong earnings potential.

Financial Health – Stable but with Minor Concerns

LI maintains a solid financial position, though there are areas to monitor:

• Debt/Equity Ratio: A healthy 0.32, better than 73% of peers.
• Current Ratio: 1.82, indicating sufficient liquidity.
• Quick Ratio: 1.71, showing good short-term financial flexibility.
• Altman-Z Score: 2.96, signaling limited bankruptcy risk but worth watching.

The company has been increasing shares outstanding, which could dilute existing shareholders, but its overall debt management remains strong.

Growth – Strong Revenue Expansion

Despite recent earnings volatility, LI shows promising growth:

• Revenue Growth: Up 247.68% on average over past years, with 10.75% YoY growth.
• Future EPS Growth: Expected to grow at 23.06% annually.
• Forward Revenue Growth: Projected at 15.09%, indicating sustained demand.

While past earnings have been inconsistent, the company’s revenue trajectory remains robust.

Conclusion

LI AUTO presents a compelling case for value investors, with an attractive valuation, strong profitability, and solid growth prospects. Its financial health is stable, though investors should monitor share dilution and ROIC trends.

For more undervalued stocks with strong fundamentals, check our Decent Value Stocks screener.

A detailed breakdown of LI’s fundamentals can be found in the full report here.

Disclaimer

This is not investment advice. Always conduct your own research before making investment decisions.