Li Auto may gain 25% over the year. Is it a strong buy?
Some companies producing cars are very successful. Take Tesla, for example. However, that’s not always the case. Still, if you know which stocks are worth financing, you may gain very handsomely. Chinese EV company Li Auto is a good company if you think about investing in this business. It boasts of having China’s single best-selling model of an electric vehicle. The Li ONE sold total 22,000 units in the first year of production, from the 3,700 units were sold this past October. According to Li, the company will likely double its annual sales number this year, considering current sales and production rates.
China has the world’s largest electric car market. It produces more than half of all EVs sold worldwide, and almost all of the electric busses. Li Auto appeared on the market in 2015. It focuses on plug-in hybrids. You can plug such models into a charging station to maintain the battery. However, they also have a combustion engine, compensating for low-density charging networks. Li ONE has rapidly found popularity in its market. It is a full-size SUV hybrid electric.
In July of 2020, Li Auto went public on the NASDAQ. The company began trading with a share price of $11.50 in the IPO. It has closed the first day with a gain of 40%. Since then, LI has surged forward by 116%.
Furthermore, the company usually reports strong earnings. In the third quarter of 2020, LI reported $363 million in sales, rising 28% sequentially. It took the lion’s share of the company’s $369.8 million in total revenue. Besides, Li showed a 149% sequential jump in free cash flow, up to $110.4 million.
What do the analysts think?
Jefferies analyst Alexious Lee stated that Li One’s EREV powertrain is a great success due to limited impact from low temp, extended range, and easier acceptance by buyers. He thinks that this advantage is sustainable in the coming months.
According to the analyst, LI AUTO is the first company in China, which successfully commercialized extended-range electric vehicle (EREV), offering a solution to drivers with range anxiety. The ER system is powered by fuel, and it provides an alternative source of electricity, along with battery packs. That is outstanding, considering the current low temp environment.
Considering all, Lee gave the stock a Buy rating, setting his price target at $44.50. This price implies 25% growth potential in the year ahead.
Other Wall Street analysts agree with Lee that LI AUTO is a buying proposition. Its shares have a Strong Buy consensus rating, based on six reviews. Thus far, the shares are trading at $35.60. However, the $44.18 average price target is in-line with Lee’s, implying a 24% upside for the next year.
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