January 27, 2022

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Li Auto Stock A Buy After Hot December?

Shares of Chinese electric-car maker Li Auto stock skyrocketed by triple digits just months after its July 2020 Nasdaq debut, as Wall Street placed big bets on EV stocks and the future of mobility. Many of the highflying stocks of 2020 experienced huge declines in the first several months of 2021 as money rotated into economic recovery plays. But Li Auto (LI) and its China EV peers are looking to make a comeback. Is Li Auto stock a buy now?




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Founded 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 and only 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.

Li Auto Stock Not Consistent Yet

However, 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 established U.S. automakers like Ford (F), General Motors (GM) and Volkswagen (VW) as they enter the China market.

If you’re thinking about buying shares of Li Auto stock, it’s key to analyze the fundamental and technical picture first.

December Delivery Update

Li Auto set another monthly delivery record in December. The China EV maker reported a total of 14,087 Li ONEs delivered last month. That represents a 130% year over year increase. That number brought total deliveries for 2021 to 90,491.

Li Auto stock rose on the news.

Rivals Xpeng (XPEV) and Nio also saw strong sales as China EV demand remains elevated. Xpeng saw December vehicle deliveries of 16,000. Nio reported December vehicle deliveries of 10,489. Xpeng stock edged lower while Nio jumped.

Tesla stock soared on blowout Q4 delivery numbers.

Li Auto Earnings

Li Auto Q3 earnings on Nov. 29 were mixed, as the carmaker saw year-over-year sales surge 210% to $1.21 billion in local currency. The EV maker also reported an adjusted loss of six cents per share. FactSet estimates had the EV maker coming in with a loss of three cents per share on revenue of $1.135 billion. Despite the mixed report, Li Auto broke out past a buy point on Monday.

Recent delivery numbers suggest the China automaker will see strong sales to close out the year. Li Auto already reported October deliveries of 7,649 vehicles, up 107% vs. a year earlier. That was up slightly from 7,094 vehicles in September, as the automaker grappled with the global chip shortage. Li Auto executives said Q4 revenue should jump 113% to 127% in local currency to $1.37 billion to $1.46 billion.

CEO Xiang Li said the company is focused on further expanding production capacity “through the addition of the Beijing manufacturing base,” as well as expanding its sales and servicing network.

Li Auto’s focus on cost-effective SUVs is the heart of its business strategy. The company was one of the first to successfully commercialize Extended Range Electric Vehicles (EREVs), which require a smaller battery pack. A smaller battery means lower production costs. And multiple power sources provide consumers with a practical solution to China’s notorious lack of battery charging infrastructure. The Li ONE has a battery-and-gas range of 1,080 kilometers, or 671 miles.


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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 89 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 an EPS Rating of 56 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. But the automaker boasts strong sales and is seeing increased mutual fund ownership. Li expects to achieve profitability in 2022.

The proprietary IBD rankings place the Chinese maker of electric cars in the No. 6 spot vs. its automotive industry peers. The automaker group is ranked a strong No. 6 out of the 197 industry groups tracked by IBD. It’s ideal to focus on top stocks in the top quartile of IBD’s groups, and the automotive group has improved from a near-worst ranking just months ago to join the top 10.

Li Auto Technical Analysis

Li Auto stock tried to break out past a 34.93 handle buy point on Nov. 29. Shares jumped as much as 11% before settling into the lower end of the price range. Still, LI stock managed a strong 6% gain post-earnings after working on multiple entry points.

LI stock gave back those gains, plunging below its 10-week line. But Li Auto stock edged higher to close out the year, notching a 6% gain the week of Dec. 31. That put shares back above their 10-week average.

On Dec. 2 the SEC announced that it was moving forward on a law that requires foreign companies to open up their books to U.S. review or face delisting. That would affect hundreds of U.S.-listed Chinese firms, including Li Auto, Nio and Xpeng.

Li Auto stock could soon have a new base next to a breakout from a longer consolidation. All of that is within a huge base going back to November 2020.

LI Stock: A Buy Right Now?

Li Auto stock has reclaimed key moving averages, with some signs of accumulation. 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 could be considered a buy for aggressive traders, trading just above its 50-day/10-week lines. That could have been considered an early entry in an emerging consolidation next to the prior, failed breakout.

While Beijing has yet to crack down on EV makers, caution is warranted due to the heightened regulatory risk around China stocks.

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.

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