Li Auto stock is trying to recover after a volatile year. Li Auto (LI) and other China EV stocks are showing tremendous sales growth, and Li is starting to show profitability. After a rough 2022, production is rebounding with a new model on tap. Is Li Auto stock a buy now?
XFounded in 2015, the Beijing-based company competes directly with Tesla (TSLA) and Nio (NIO) in the high-end EV market. The company debuted its first model, an electric hybrid SUV called the Li ONE, in December 2019. That vehicle carries a price tag ranging from $29,000 to $76,000 and was one of China's top-10 sellers across all fuel types in 2020.
Covid shutdowns hit production, logistics and demand for Li Auto and other EV makers last year. Production recovered as Shanghai largely ended its lockdowns on June 1.
Meanwhile, several provinces, including Shanghai and Beijing, have announced new EV subsidies.
Q4 Earnings
Li Auto gave an upbeat delivery and revenue outlook after posting Q4 earnings on Feb. 27.
Li Auto earnings jumped 41% to six cents per ADR share. Revenue surged nearly 53% to $2.566 billion. The startup previously reported Q4 deliveries of 46,319 electric vehicles, a 31.5% year-over-year increase.
Analysts expected Li Auto to post a 48% EPS jump to 7 cents per ADR share, following two straight quarters of losses. The startup, which makes premium hybrid-electric EVs, has an inconsistent record of quarterly profits. Revenue was seen growing more than 50% to $2.566 billion, according to FactSet data.
Li Auto expects Q1 revenue of $2.53 billion-$2.68 billion. That would be an increase of 82.5%-93% from a year ago. The Chinese EV maker projected Q1 deliveries of 52,000-55,000 electric vehicles. That number would be a 64%-73% increase over the same quarter last year.
Turning Profitable
Li Auto stock has yet to show investors it can be consistently profitable.
And even though Li is seeing strong vehicle deliveries, it's competing not only against Tesla and China EV peers, but also established U.S. automakers like Ford (F) and General Motors (GM) as well as Volkswagen (VW) as they enter the China EV market.
If you're thinking about buying shares of Li Auto stock, it's key to analyze the fundamental and technical picture first.
Five Best China Stocks To Buy And Watch
Li Auto Fundamental Analysis
To determine whether Li Auto stock is a buy now, it's key to conduct fundamental and technical analysis.
The IBD Stock Checkup tool shows Li Auto stock has an IBD Composite Rating of 59 out of a best-possible 99. The rating measures a stock based on the most important fundamental and technical stock-picking criteria. IBD research shows some of the greatest stock winners of all time often have a Composite Rating of at least 95 near the start of big runs.
The Composite Rating looks at earnings and sales growth, profit margins, return on equity and relative stock price performance, among other metrics.
Li Auto stock has a dismal EPS Rating of 35 out of 99. That rating compares quarterly and annual earnings-per-share growth with all other stocks. Relatively recent IPOs typically don't have a long track record of profitability.
The proprietary IBD rankings place the Chinese maker of electric cars in the No. 5 spot vs. its automotive industry peers. The automaker group ranks No. 112 out of the 197 industry groups tracked by IBD. It's ideal to focus on the best stocks in the top quartile of IBD's groups.
LI Stock Technical Analysis
LI stock is on the move after a rocky year. Shares shed roughly 70% of their value in the second half of 2022, falling from a June high of 41.49 to a low of 12.52 in mid-October.
Li Auto fell along with other Chinese stocks after being hit with a triple whammy of regulation fears, a Covid resurgence and concerns over Beijing's close relationship with Russia.
But since hitting bear market lows, Li Auto stock is making a comeback. The stock has gained nearly 30% so far in 2023 and has moved above its 10-week moving average. The next hurdle for LI stock would be a move about its 40-week line. That area has acted a level of resistance for the Chinese automaker.
Tesla Vs. BYD: Which EV Giant Is The Better Buy?
LI Stock: A Buy Right Now?
Li Auto stock has been moving higher after a prolonged downtrend. As for fundamentals, Li Auto sales have seen strong growth over the last few quarters. Electric cars remain a compelling growth story.
Bottom line: Li Auto stock is not a buy. Ideally, LI stock would form a new, valid base. But with a shaky market, investors should remain careful.
To find the best stocks to buy and watch, check out IBD's Stock Lists page. More stock ideas can be found on our Leaderboard and MarketSmith platforms.
YOU MIGHT ALSO LIKE:
These Are The Best EV Stocks To Buy And Watch Now
Is Nio Stock A Buy? Here's What Earnings, Charts Show
Find Compelling Growth Stocks With IBD's Stock Of The Day
Catch The Next Big Winning Stock With MarketSmith
Get Free IBD Newsletters: Market Prep | Tech Report | How To Invest
