Li Auto(NASDAQ: LI) stock bounced 6.5% through 10:35 a.m. ET on Tuesday after receiving two bullish notes from Wall Street analysts. On Monday, Bernstein urged investors to "buy the mega dip" in this Chinese electric car maker's stock, as StreetInsider reported. Just one day later, The Fly reported that Morgan Stanley agrees.
Li auto stock, says Morgan Stanley, is poised to almost double in price -- and will soar to $74 a share within a year.
What Wall Street analysts say about Li Auto stock
Li Auto stock had a terrific 2023, with sales surging 173.5%, gross profit margin expanding 280 basis points, and free cash flow growing to $6.2 billion. Net income according to generally accepted accounting principles (GAAP) flipped from a loss in 2022 to a profit of $1.7 billion in 2023.
Li stock responded by rising more than 20%, but was unable to hold onto its gains. Worrisome guidance on 2024 sales, reinforced by a weak update on February deliveries, convinced investors that 2024 wouldn't be as kind to Li as 2023. Bernstein, however, thinks this sell-off provides an "attractive buying opportunity," and Morgan Stanley believes Li stock could become a two-bagger within one year.
Is Li Auto stock a buy?
They may be right. In Bernstein's write-up, the analyst emphasizes the potential of Li's new "MEGA" electric vehicle to help boost annual sales to 660,000 units in 2024. That's not quite as strong as the up to 800,000 units that Li is projecting. But it would still be a 75% increase from the 376,030 units Li sold in 2023.
Combined with improved profit margins on sales (Morgan Stanley estimates gross margin will grow another 100 basis points, or 1%), it seems reasonable to expect that earnings would grow faster than sales -- and that Li's stock price would increase in tandem, rising the 90% implied by Morgan Stanley's $74 price target.
Any way you cut it, Li stock at less than 24 times earnings, with a percentage growth rate several times that amount, seems to give investors a wide margin of safety to buy Li Auto stock today.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
