Investors should buy discounted Li Auto shares as China’s economy booms!

Li Auto (NASDAQ:LI) shares are down 9% over the past 12 months. Thus, the company’s share price remains very good compared to some of its peers.

However, the current $25 share price is some way below the $41 level it reached last summer after the launch of the long-awaited L9 SUV.

So why do I think investors should load up on Li’s stock?

top performer

There are several interesting new EV companies in China, including Li, NIOand Xpeng. While all three companies have long-term growth prospects, especially NIO with its unique battery replacement technology, Li is the first to appear financially sustainable.

Earlier this week, the carmaker reported adjusted earnings per share of 13c on revenue of $2.56bn in Q4. This is more than expected. Analysts had forecast earnings of 7c on revenue of $2.6bn.

It’s widely thought to be the first Chinese EV maker to make a profit, and Q4 shows it.

Strong data from China

China’s economy is expected to grow by 5.2% this year. At least that was the forecast of the International Monetary Fund at the beginning of the year. Analysts are increasingly raising their estimates as China’s economic data comes as a surprise.

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 represents the fastest growth in factory activity in 11 years.

So, analysts expect economic growth of 6%+ in 2023.

A good start to the year

Nio, Xpeng, and Li Auto all recorded monthly delivery increases in February. Li Auto delivered 16,620 vehicles to buyers during the month, a 9.8% increase from January, and 97.5% higher than February 2022.

However, it is important not to read too much into these monthly increases. Part of the uptick can be explained by the fact that Imlek will land in January in 2023. In 2022, the holiday will land in February. Businesses usually suspend operations during the holidays.

Strong buy for me

Let’s start with the price. No one wants to buy an expensive stock, and Li is trading at an EV-to-sales ratio of 2.8. That is generally in line with our Chinese friends, but lower than our US friends. sector leader Tesla trading with an EV-to-sales ratio of 7.2. This indicates that the fair value could be higher than the current level.

However, it is important to remember that investors will prefer Tesla – a profitable US stock – to China’s new Li, mainly due to geopolitical tensions. And it should be noted that geopolitics and trade wars may continue to affect stock prices. However, I still see the price as a big plus.

Then we come to the strength of the company’s offering. The L9 – the company’s second car – is an excellent vehicle. The SUV is equipped with two electric engines and one petrol, providing a range of 1,100 km.

Competitively priced at the top end of the market at $70,000. It offers a wealth of technology, including a sizeable infotainment display controlled by a 3DToF hand/finger tracking camera. I can be a real champion wherever it is sold.

And finally, Li’s main battery supplier, CATL, is reportedly offering big discounts to major clients. This could really help margin growth in 2023. That’s why I bought more shares of Li Auto.