Investors shouldn’t over complicate an investment into Li Auto (NASDAQ:LI) stock. Almost every piece of evidence points toward the same conclusion: Li Auto is a firm with a bright future ahead of it. And, LI stock sits 23.3% below a three-year high tipped in late November 2020.
In fact, things are already going quite well for the Chinese electric vehicle manufacturer. Perhaps investors who are interested but hesitant are simply waiting to time the market. That is to say, they want to purchase LI shares but also hope that prices may dip from their current $30 back into the teens. After all, that’s where they were throughout the first three weeks of May.
My thesis is this: Establish a position now at $30 because there is no guarantee that this isn’t the new bottom. LI stock carries an overwhelming consensus buy rating and an average target price of $39. Console yourself with that knowledge and if Chinese EV stocks dip again simply think longer term.
Rapid Growth
The easiest way to understand how well Li Auto is doing is to simply look at first-quarter earnings results and then dissect delivery results in April, May and June.
When Li Auto released its Q1 earnings report in late May, a few things jumped off the page. Firstly, vehicle sales had grown significantly in period on a year-over-year basis. Li Auto reported $129.8 million (on a yuan-adjusted basis) in sales during the first quarter of 2020.
That number ballooned to $534.6 million in revenues a year later, in the first quarter of 2021. That 311.8% growth leaps off the page and simply cannot be ignored.
But as impressive as those figures are, the earnings report wasn’t without concerns. Li Auto had actually experienced a decrease in revenues from the previous quarter. Q4 2020 revenues were 14.6% greater than those in Q1 2021.
Further, Li Auto recorded a net loss of $55.56 million in Q1 after posting a net gain of $16.59 million in Q4. Li Auto will likely figure these issues out in coming quarters.
The overall narrative is that Li Auto’s Q1 numbers were strong, but weaker than those in the previous period. That’s concerning. However, it’s clear that Q2 is shaping up to be the company’s best yet.
This Quarter Will Be Li Auto’s Best Yet
Based on what we saw in the first quarter, the second is clearly shaping up to be the company’s best. Li Auto delivered 12,579 vehicles in Q1. Several fold more than the 2,896 it delivered a year prior. But less than the 14,464 it delivered in Q4.
The company is on track to blow those numbers out of the water. In April it delivered 5,539 vehicles. In May the number was 4,323 deliveries. And in June, 7,713 vehicles. That puts the firm’s delivery total at 17,575 for Q2. That’s an all-time high which also bested the top end of company guidance.
Investors then are aware that Li Auto is stronger than it has ever been. Revenues will clearly have gone up once Q2 results are released. Investors should be paying attention to net income and margin figures at that time.
If Li Auto posted net income in Q4 when it sold 14,464 vehicles then it may be poised to do the same given that it sold 17,575 in Q2.
Investors will also be keenly watching margin percentage figures as well. The same logic applies here. Li Auto should post margins of greater than 17.5% (Q4) when it releases earnings.
Keep an eye on those numbers but bet into the strength that LI stock represents right now.
There’s little to suggest that this name doesn’t make sense over the long term. Again, there’s no need to over complicate it. You’ve got a fast-growing company in an even faster-growing market. Chinese EV demand is high and it’s the world’s largest EV market.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
