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Hype Asset of the Day | June 15, 2022



Li Auto (NASDAQ: LI)


Li Auto is one of China's most established electric car makers, which firmly positions it to capture market share over the next few years. In 2020, the company debuted on the Nasdaq (NASDAQ: LI) and raised over a billion dollars with their initial public offering. With China easing the most recent pandemic lockdowns, Li Auto has seen an increase in mentions of the company by 200% over the last day, prompting investors to wonder if Li Auto is a good investment. Currently, Li Auto is trading for $32.22 per share.


Positive Hype

There are lots of reasons Li Auto made it into the limelight recently, some of them are as follows.


  • Li Auto has shed roughly 25% of its market value since the start of the year. Trading at just 3.4 times forward sales at the moment, Li Auto shares can seem very appealing given it’s high growth rates.


  • China's EV market is forecast to expand at a compound annual growth rate (CAGR) of 30% through 2027 and reach $800 billion annually, meaning Li has a change to capture a larger share of the market.


  • Li Auto has an enviable set of financials. In the first quarter, the company's total sales climbed 176% year over year to 9.31 billion yuan ($1.5 billion), and its non-GAAP EPS finished in the green at $0.04. Adjusted earnings per share finished positive at 0.23 yuan ($0.04), representing a nice jump from its negative 0.10 yuan in Q1 2021.


  • The company delivered 31,716 cars in Q1, up 152% year over year, and it ended the quarter cash flow positive, generating 502 million yuan ($79.2 million) in free cash flow, meaning that there’s sustainable source of finance to fuel its future growth.


  • For the full fiscal year 2022, analysts expect the company's revenue to rise 77% year over year and its net loss to equal $0.07 EPS, however it seems that with manufacturing opening up, the company might beat these. Li Auto also recently delivered solid numbers for its first quarter, including gross margin of 22.6% and a jump of nearly 168% in year-over-year revenue.


Negative Hype


Before you invest, you should always consider the negatives. Sometimes, detail that might seem insignificant may wreak havoc on your investment. Here are a couple of reasons you might want to avoid Li Auto.

  • Li Auto said that, although its parts suppliers have resumed production, they aren't operating at full capacity yet, this is hurting vehicle deliveries.


  • There is also the off chance that there is another lockdown in China which could hurt the company even further. The Chinese government has a strict "zero-COVID" policy that requires companies, production facilities, and even cities to shut down when coronavirus cases are detected.


  • Li Auto doesn’t pay any dividends and although it has fallen significantly from its highs, the company may still be considered overvalued based on traditional price multiples.


Conclusion

All in all, Li Auto is paving the way for electrical vehicle manufacturers in China with solid foundations and great opportunity for growth in the near future. The only visible hurdle for the company is the potential of another lockdown being imposed by the Chinese government. We’re all looking to put COVID-19 behind us now so if you’re looking for fairly safe gains in the short-term future, Li Auto is the way to go. If you want to learn about more trending stocks, before anyone else, check out our premium plans. Or alternatively, head over to our FAQ page to learn more about the services offered by HypeIndex.




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