Momentum has stalled for Li Auto (LI). The Chinese EV maker made some impressive market moves in 2020, but has failed to ignite so far in 2021, with shares down 10% year-to-date.
The pullback has been a common theme amongst growth stocks, and particularly Chinese EV (electric vehicle) players. Additionally, last week’s 4Q20 results did little to quell the bearish sentiment, as overheated valuations have been put under the microscope recently.
However, Daiwa analyst Kelvin Lau thinks the company’s prospects are promising.
“Despite near-term earnings pressure due to heavy R&D and sales expenses (led by store expansion), we are upbeat on Li Auto’s long-run market expansion and technology development,” the 5-star analyst said. “With the recent share-price retreat, we are upgrading the stock to Buy from Hold.”
The price target also gets a slight nudge and is increased from $33 to $34. The revised figure implies ~31% upside from current levels. (To watch Lau’s track record, click here)
Lau says the past 5 years amount to Li’s “first phase of growth.” Having met its target to post “positive operating cash flow and high operating efficiency,” the EV maker is now entering its second phase of growth, anticipated to last until 2025.
During this period, the focus will be on expanding retail stores – the company has guided for 200 by the end of the year, compared to the 50 it boasted at the end of 2020 – and a big investmentin R&D to drive “future market expansion.”
The focus on R&D and advancing the company’s technology should see it close the gap on peers Xpeng and NIO. Management has said they are trailing the local rivals by less than a year, and noted they already have some autonomous driving tech ready, with an auto pilot system in place.
Next year, the company wants to bring to market at least 2 new products, and going on past performance, Lau expects Li to come good on its promise.
“We see the first phase development as impressive with positive operating cash flow and a robust gross margin (16% in 2020) with just one model launched since end-2019, which fuels our confidence in its execution capability,” the analyst summed up.
Almost all of Lau’s colleagues are of the same persuasion. LI’s Strong Buy consensus rating is based on 5 Buys vs. one lone Hold. The average price target is a bullish one; At $40.75, the forecast is for ~58% upside in the year ahead. (See Li Auto stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.