Stocks of several Chinese companies have experienced notable movement this week, primarily spurred by China's expanded stimulus plans. Li Auto (LI, Financial) recorded a price increase of 0.24%, reflecting investor optimism in the broader economic context. The announcement of stimulus measures totaling approximately $1.07 trillion, equivalent to about 6% of China’s GDP, has been viewed positively, indicating potential economic growth and increased domestic demand, particularly in the automotive industry.
Li Auto (LI, Financial), currently priced at $29.06, offers an intriguing valuation analysis. The company trades with a price-to-earnings (P/E) ratio of 21.8 and a price-to-book (P/B) ratio of 3.56. Despite the positive short-term price movement, the long-term perspective, as reflected in the GF Value, suggests a cautionary stance as it is currently labeled as a "Possible Value Trap" at $69.91. For more detailed insights, see the GF Value.
Li Auto has demonstrated strong financial strength, highlighted by its Altman Z-Score of 3.21 and interest coverage ratio of 54.22. This indicates the company is financially stable, with ample cash to cover its debts. However, there are concerns, including a potential manipulation risk highlighted by a Beneish M-Score of -0.49, suggesting the necessity for investors to maintain a cautious approach.
The company's revenue growth is impressive, with a one-year growth rate of 68.4% and a three-year rate of 128.9%. The electric vehicle manufacturer delivered 53,709 vehicles in September 2024, marking a 48.9% increase from the previous year and an 11.6% rise from the previous month, showcasing robust operational momentum in its sector.
As investors consider the recent surge in Li Auto's stock, it is crucial to balance the short-term optimism with awareness of long-term challenges. While the stimulus provides a temporary boost, ongoing issues such as global tariffs and market oversupply continue to pose potential risks.
