On Monday, CFRA issued a new rating for NASDAQ:LI, the shares of Li Auto (NASDAQ:LI), downgrading the stock from Hold to Sell and significantly reducing the price target to $18 from the previous $50. The revision reflects a more conservative valuation, pegging the 2024 price-to-book (P/B) ratio at 2x, which is lower than the company's average P/B of 4x from 2020 to 2023. This adjustment accounts for anticipated challenges in profit margins.
Li Auto reported a net profit of CNY 591 million for the first quarter of 2024, which, while positive, was lower than the CNY 934 million net profit recorded in the same quarter of the previous year. Despite this, the company experienced a 32% increase in revenue. Analysts expect that Li Auto's revenue growth will continue to exceed 70% in 2024 and 2025, driven by the launch of new models.
The firm's neutral stance on Li Auto's fundamental business is due to the intense competition within China's electric vehicle (EV) market. This competition is expected to constrain the average selling prices of Li Auto's vehicles while simultaneously necessitating increased research and development, as well as marketing expenditures. Particularly as Li Auto introduces a variety of new products in 2024, the company's profitability momentum is a point of caution.
As a result of these factors, CFRA has revised its earnings per share (EPS) projections for Li Auto, lowering the forecast for 2024 to CNY 12.77 from CNY 14.30, and for 2025 to CNY 17.19 from CNY 19.90. The updated rating and price target reflect a cautious outlook on the company's ability to maintain profitability in the face of stiff competition and escalating costs.
InvestingPro Insights
With the recent downgrade of Li Auto by CFRA, investors are keenly watching the company's financial health and market performance. According to InvestingPro data, Li Auto holds a market capitalization of 23.01 billion USD, and its revenue growth over the last twelve months as of Q4 2023 stands at a striking 173.48%. This aligns with analysts' expectations of continued revenue growth for the company.
InvestingPro Tips suggest that Li Auto is a prominent player in the Automobiles industry, having a valuation that implies a strong free cash flow yield. Moreover, the stock has experienced significant price volatility, with a notable decline of 7.81% over the last week and 41.16% over the last six months, trading near its 52-week low.
This could potentially present a buying opportunity for investors who believe in the company's long-term prospects, especially considering that the stock now trades below the historical average P/B ratio mentioned by CFRA.
For investors seeking a deeper analysis, there are additional InvestingPro Tips available on https://www.investing.com/pro/LI, which could provide further insights into Li Auto's financials and market position. To access these insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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