Li Auto Inc - ADR (NASDAQ:LI) Emerges as a Top Value Pick with Strong Fundamentals and Growth Potential

Li Auto Inc - ADR (NASDAQ:LI) has been recognized as a possible choice for value investors after being highlighted by a "Decent Value" screening method. This strategy targets stocks with solid fundamental valuations (scoring 7 or above) while also showing reasonable profitability, financial stability, and growth potential. The approach follows key value investing principles, which look for companies priced below their true worth but with strong fundamentals that may lead to future gains.

Key Fundamentals Highlighting LI as an Undervalued Stock

1. Appealing Valuation (Rating: 8/10)

The valuation data for Li Auto indicates the stock is priced lower compared to both its industry competitors and broader market standards:

• Price/Earnings (P/E) Ratio (22.85) – Slightly higher than the ideal range for deep-value stocks, LI’s P/E remains much lower than 83.78% of its Automobiles industry peers (average industry P/E: 30.47).
• Forward P/E (10.54) – A more attractive number, pointing to expectations of solid earnings growth. This is notably below the S&P 500’s forward P/E of 36.28 and the industry average of 42.47.
• Enterprise Value/EBITDA & Price/FCF – Both ratios compare well, with LI priced lower than 86-100% of rivals, supporting its undervalued status.

For value investors, these figures suggest a safety margin—LI’s current price does not fully account for its earnings potential, especially considering its growth path.

2. Strong Profitability (Rating: 7/10)

Even as a newer automaker, LI shows impressive profitability metrics:

• Profit Margin (5.56%) – Better than 89.19% of industry peers.
• Return on Equity (11.33%) & Return on Invested Capital (5.68%) – Both rank highly in the sector, showing effective use of capital.
• Operating & Gross Margins – Solid at 4.86% and 20.53%, respectively, with gross margins standing out in the capital-heavy auto industry.

Profitability is vital for value investors, as it lessens dependence on uncertain future growth and offers protection during economic downturns.

3. Balanced Financial Health (Rating: 6/10)

LI’s financial position has strengths but needs attention:

• Low Debt/Equity (0.32) – Higher than 75.68% of peers, lowering bankruptcy risk.
• Strong Quick Ratio (1.71) – Shows enough liquidity to meet short-term needs.
• Altman-Z Score (2.78) – While not in the "safe" range (>3), it still beats 83.78% of competitors.

The moderate health rating means LI isn’t overly burdened by debt, but investors should monitor cash flow and debt trends.

4. Growth Opportunities (Rating: 6/10)

Growth is less critical for value investors, but LI’s outlook adds potential:

• Revenue Growth (247.68% CAGR over past years) – Reflects high demand for its premium EVs.
• Forward EPS Growth (23.06%) – Above average, supporting its low forward P/E.
• Revenue Expectations (15.02% annual growth) – Indicates continued progress despite a cooling Chinese EV market.

While past EPS volatility (-29.05% YoY drop) is a worry, the long-term growth trend fits value investing’s focus on future revaluation potential.

Why LI Matches the Value Investing Approach

Value investing prioritizes buying stocks below their true value while ensuring the business is fundamentally healthy. LI’s mix of low valuation multiples, strong profitability, and reasonable debt levels makes it an attractive option. The stock’s growth potential also lowers the risk of a "value trap," where a cheap stock fails to advance due to weak business performance.

For investors looking for similar opportunities, the Decent Value Stocks screener can help find other undervalued stocks with solid fundamentals.

Disclaimer: This analysis is not investment advice. Always conduct your own research or consult a financial advisor before making investment decisions.