For gaining exposure to the rise of EVs in China, investors have many choices. However, while there isn’t necessarily a “one and only” China EV stock to own, Li Auto (NASDAQ:LI) stock is definitely a name that should be considered a top choice.
Yes, U.S. investors looking to own a piece of the largest Chinese electric vehicle companies have the opportunity to do so.
For instance, both BYD Company Limited (OTCMKTS:BYDDF) and Geely Automobile Holdings (OTCMKTS:GELYY) have American Depository Receipts (or ADRs) that trade in the over-the-counter market.
An investment in Tesla (NASDAQ:TSLA) also provides considerable exposure to this trend. Other China-based EV upstarts also trade stateside, including Nio (NYSE:NIO) and Xpeng (NYSE:XPEV).
However, if you’re looking to buy and hold the China EV stock with the greatest upside potential, this name may be the one.
LI Stock: Strong Growth and Good Value
Investment analysts and commentators are quick to assign stocks the “growth at a reasonable price” designation. Few actually represent the winning combination of strong growth and good value.
However, LI stock is one such example. Throughout 2023, the company reported high levels of vehicle delivery and revenue growth. Both are up by triple digits compared to 2022. That’s not all. It’s not as if Li’s deliveries and revenue, after bouncing back from 2022’s “zero Covid” lockdowns, have plateaued.
As Louis Navellier and the InvestorPlace Research Staff have pointed out, underwhelming growth has been an issue for Li’s rival Nio in recent quarters. In contrast, Li Auto has not only reported high year-over-year growth. On a sequential (quarter-over-quarter) basis, deliveries and revenue have been climbing at around a 20% clip.
This growth has resulted in consistent positive earnings in recent quarters. Li’s valuation remains reasonable despite strong growth and a 70%-plus increase in shares.
You can buy LI today at a valuation of just 25.8 times earnings. This suggests more room for further gains, thanks to both continued earnings growth and multiple expansion.
Two Reasons Why an Elevated Level of Growth Will Carry On
Per current sell-side forecasts for LI stock, the company’s revenue is expected to grow by around 60%, with earnings per share rising by around 31.2%. While this may represent growth deceleration compared to 2022 results, such growth is nothing to sneeze at.
Although forecasts are subject to change, much points to Li Auto living up to these expectations. For one, by focusing on SUVs, Li has arguably carved out a niche for itself. While still relatively small compared to BYD and Geely, the company ranks number one in Chinese high-end SUV sales.
Second, Li has perhaps gained an edge over the competition, in another way. This automaker’s vehicles are neither purely battery-electric nor plug-in hybrids, as Barron’s noted in November. Rather, Li’s primarily battery-powered vehicles also have a built-in gasoline-powered generator to extend range.
While this “edge” will undoubtedly disappear once battery technology catches up to motorist needs, for now this unique workaround may continue to help Li keep growing, and to keep gaining share in the highly-competitive Chinese EV market. This points to another winning year ahead for the stock.
Bottom Line: Make LI Stock a Buy
Meeting 2024 forecasts alone could drive a 30%+ surge in share price.
If that doesn’t pique your interest, consider as well that the top end of estimates call for EPS of $2.45. That would represent around a 77.5% increase compared to 2023. Not only that, again there is potential for multiple expansion here.
As further growth will signal to the market that Li’s strong performance this year was not a “one and done” event, shares could move towards a much higher forward valuation. Say, from 25.8 times forward earnings, up to a forward price-to-earnings (or P/E) ratio of 30, 35, or even higher.
With this clear path to additional gains over the next twelve months, the verdict is clear. If you’re bullish on Chinese EV plays, make LI stock a buy.
On the date of publication, Thomas Niel did not hold (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.
