Li Auto stock is looking expensive. Citigroup likes it, but can’t recommend buying it at this price.
Shares of Chinese electric carmaker Li Auto (LI -0.48%) leapt 6% higher through 11 a.m. ET Monday. Probably partly because of China’s stimulus effort to jump-start its economy and boost demand for electric cars and other consumer products, which is helping many Chinese stocks today.
But partly, the reason is Citigroup, which just raised its price target on Li stock for the second time in a week.
Why Citi keeps changing its price target
As The Fly reports, on Tuesday last week Citi analyst Jeff Chung raised his price target on Li stock from $21.60 per share to $25.50 — an 18% bump — citing a “strong EV sector sales tailwind.” Today’s bump is similar, if not quite so big, from $25.50 to $29.60.
It also has a different rationale. Raising his price target by another 16% this morning, Chung said an upcoming Tesla Robotaxi event will raise the profile of EV stocks in China. The analyst views this as fortunate timing because China is heading into “car sales high season.
Is Li Auto stock a buy?
So far, so good. But here’s where things turn a little less good: Li stock has moved steadily higher as Chung raised his price target this past week — which makes sense.
However, despite the price target hike, Chung is not convinced that Li stock is a buy. Citing an “aging” lineup of vehicles for sale and “peer competition,” he rates Li stock only neutral, and says the stock is only fairly valued — which is to say, not cheap enough to buy.
I’m inclined to agree.
On the one hand, Li is generating quite a lot of cash right now. The stock costs only 10 times trailing free cash flow, which is half its valuation against generally accepted accounting principles (GAAP) net earnings of 20. On the other hand, analysts polled by S&P Global Market Intelligence see free cash flow declining this year, and long-term growth estimates are only 10%. On a 20 P/E ratio, calling this stock even just “fairly priced” might be generous.
Citigroup is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
