On Tuesday, Morgan Stanley adjusted its outlook on Li Auto Inc . (NASDAQ:LI), reducing its price target to $53.00 from the previous $65.00 while maintaining an Overweight rating on the stock. The adjustment comes after a significant decline in the company's share price, which is now trading around $21, a stark contrast to its earlier peak in late February 2024.
The firm acknowledged the current challenges facing Li Auto, including concerns about vehicle deliveries, the electric vehicle (EV) market recalibration, increasing competition, and broader macroeconomic risks. Despite these headwinds, Morgan Stanley's analysis suggests that the market may have overreacted, with the recent selloff potentially reflecting an overly pessimistic view of the company's prospects.
The price correction of over 50% from Li Auto's previous high point contrasts with the 15% gain in the Hang Seng Index during the same period. Morgan Stanley believes that this sharp decline in Li Auto's stock price has likely factored in the disappointments regarding the company's fundamentals.
Morgan Stanley highlighted Li Auto's valuation, noting that the stock is currently trading at 1x its estimated 2024 price-to-sales ratio (P/S), which is lower than its peers' range of 1.1-1.2x. With reasonable profits and cash flow, the firm suggests that investors might begin to recognize the potential for more favorable outcomes for the EV maker.
The Overweight rating indicates Morgan Stanley's view that Li Auto's shares could outperform the average total return of the stocks covered by the analyst over the next 12 to 18 months. The new price target of $53.00 reflects Morgan Stanley's adjusted expectations for the company's future performance.
InvestingPro Insights
Recent data from InvestingPro aligns with Morgan Stanley's perspective on Li Auto Inc. (NASDAQ:LI), underscoring some positive fundamentals despite the stock's recent downturn. Notably, Li Auto holds more cash than debt on its balance sheet, which is a reassuring sign of financial stability. Additionally, the stock's RSI suggests it is in oversold territory, indicating the potential for a rebound as market sentiment shifts.
InvestingPro Data for Li Auto reveals a market capitalization of $22.02 billion and a Price/Earnings (P/E) ratio of 12.68, which is reasonable within the industry, hinting at a potentially undervalued stock. The company's revenue growth has been impressive, with a staggering 139.76% increase over the last twelve months as of Q1 2024. This financial strength is further evidenced by a solid gross profit margin of 22.15%. Despite the recent price volatility, with a 1-week price total return of -17.77%, the company's fundamentals may offer a compelling case for investment consideration.
For those interested in further insights, InvestingPro offers additional tips on Li Auto, which can be accessed at https://www.investing.com/pro/LI. To enhance your investing strategy, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With this resource, investors can explore a total of 15 InvestingPro Tips to guide their decision-making process.
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