Shares of Chinese electric vehicle manufacturer Li Auto (LI -0.64%) rose by 6% as of 11 a.m. ET on Monday. This increase is attributed in part to China’s new stimulus efforts aimed at reinvigorating its economy and boosting demand for electric vehicles and other consumer goods, which has positively impacted many Chinese stocks.
Another contributing factor is Citigroup’s recent adjustment of its price target for Li Auto’s stock. Citigroup raised the price target for Li Auto’s stock twice within a week, reflecting growing optimism about the company’s prospects.
On Tuesday of the previous week, Citi analyst Jeff Chung elevated the price target from $21.60 to $25.50 per share, an 18% rise, citing a strong tailwind in the electric vehicle sector. The latest increase announced today, while smaller in percentage at 16%, raises the target further to $29.60 per share. Chung attributes this adjustment to the upcoming Tesla Robotaxi event, which he believes will increase the visibility of EV stocks in China, coinciding with the peak car sales season in the country.
Despite these adjustments, Chung expresses reservations about the stock’s current valuation. Even with the raised price target, he maintains a neutral rating on Li Auto, pointing to an “aging” vehicle lineup and heightened competition from peers. According to Chung, the stock is fairly valued but not attractive enough to warrant a buy recommendation.
Li Auto is currently generating substantial cash flow, with the stock trading at ten times its trailing free cash flow—a figure that is half its valuation when considering generally accepted accounting principles (GAAP) net earnings. Nevertheless, expectations for declining free cash flow this year and modest long-term growth projections of only 10%, lead analysts to consider labeling the stock as merely “fairly priced” generous, given its 20 P/E ratio.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Rich Smith, the author, holds no position in any of the mentioned stocks. The Motley Fool has positions in and recommends Tesla. Further disclosure information can be found in The Motley Fool’s disclosure policy.
