Shares of Chinese electric-car maker Li Auto stock skyrocketed by triple digits just months after its July 2020 Nasdaq debut, as Wall Street placed big bets on EV stocks and the future of mobility.Li Auto($(LI)$) and its China EV peers are showing tremendous sales growth, with Li flirting with profitability. But they've had a rough start to 2022. Is Li Auto stock a buy now?
Founded in 2015, the Beijing-based company competes directly withTesla($(TSLA)$) andNio($(NIO)$) in the high-end EV market. The company debuted its first and only model, an electric hybrid SUV called the Li ONE, in December 2019. That vehicle carries a price tag ranging from $29,000 to $76,000 and was one of China's top-10 sellers across all fuel types in 2020.
China Regulators Ease Pressure
China stockssurged on Mar. 16 after Beijing officials signaled they could ease up on the regulatory crackdown hat has hammered the country's stocks and markets. Chinese stocks have been volatile for more than a year, due largely to regulatory and Covid-19 fears, as well as other macroeconomic concerns.
China financial officials also plan to support overseas stock listings and build stability in capital markets "as soon as possible," it was reported by state media.
Li Auto Earnings
Li Auto Q4 earnings on Feb. 25 beat expectations, as the carmaker saw year-over-year sales surge 156% to $1.67 billion in local currency. The EV maker also reported an earnings of 11 cents per share. Analysts had expected the carmaker to post a loss of 4 cents per share on revenue of $1.59 billion. LI stock jumped on the earnings beat.
Li Auto saw its second consecutive quarter of revenue growth, even as the company ramps up spending on vehicle production. The China EV maker is anticipated to bring its second vehicle model to market in the very near future.
"We expect 2022 will be another pivotal year of growth for Li Auto," company president Kevin Shen said on the Feb. 25 earnings call. But despite that optimistic outlook, Li Auto executives lowered the company's guidance for the next quarter.
Management expects the company to deliver about 31,000 vehicles in the first quarter and generate sales of about $1.43 billion. That's below projected totals of 32,000 vehicles and $1.5 billion in sales.
February Delivery Update
Li Auto outsold its competitors in February. TheChina EV startupsold 8,414 Li One hybrid SUVs, up 266% vs. a year earlier but down sharply from 12,268 in January. Li Auto stock rose on the news.
Nio andXpeng Motors(XPEV) also saw a decrease in deliveries from the previous month due to production downtime. Xpeng reported February vehicle deliveries of 6,225 EVs. Nio sold 6,131 EVs last month.
China EV giantBYD(BYDDF) is also on deck to report February sales. BYD's EV sales nearly quadrupled in January.
Li Auto Stock Not Consistent Yet
However, Li Auto stock has yet to show investors it can be consistently profitable. But it has been profitable on a non-GAAP basis for the past two quarters.
And even though Li is seeing strong vehicle deliveries, it's competing not only against Tesla and China EV peers, but also established U.S. automakers likeFord(F) and General Motors(GM) as well as Volkswagen(VW) as they enter the China market.
If you're thinking about buying shares of Li Auto stock, it's key to analyze the fundamental and technical picture first.
Li Auto Fundamental Analysis
To determine whether Li Auto stock is a buy now, it's key to conduct fundamental and technical analysis.
The IBDStock Checkup toolshows Li Auto stock has an IBDComposite Ratingof 40 out of a best-possible 99. The rating measures a stock based on the most important fundamental and technical stock-picking criteria. IBD research shows some of the greatest stock winners of all time often have a Composite Rating of at least 95 near the start of big runs.
The Composite Rating looks at earnings and sales growth, profit margins, return on equity and relative stock price performance, among other metrics.
Li Auto stock has anEPS Ratingof 71 out of 99. That rating compares quarterly and annual earnings-per-share growth with all other stocks. Relatively recent IPOs typically don't have a long track record of profitability. But the automaker boasts strong sales and is seeing increased mutual fund ownership. Li expects to achieve profitability in 2022.
The proprietary IBD rankings place the Chinese maker of electric cars in the No. 7 spot vs. its automotive industry peers. The automaker group is ranked No. 138 out of the 197 industry groups tracked by IBD. It's ideal to focus on top stocks in the top quartile of IBD's groups.
Li Auto Technical Analysis
LI stock jumped roughly 28% on Mar. 16 as China financial officials said regulatory crackdowns ontechnology companiescould soon end. Before that announcement, Li Auto stock tumbled in mid-March. Li fell with otherChinese stocks hit with a triple whammy of regulation fears, a Covid resurgence and concerns over Beijing's close relationship with Russia. Shares sunk well below their 10- and 40-week lines and are down roughly 17% so far this March.
Prior to that turbulence, Li Auto stock had rebounded above the 50- and 200-day moving averages on Feb. 28. That move was fueled by Q4 earnings, which saw LI stock post its second straight quarter of profits. Strong February sales numbers also lifted LI stock.
Previously, Li Auto stock tried to break out past a 34.93 handle buy point on Nov. 29, but that didn't last for long.
On Dec. 2 the SEC announced that it was moving forward on a law that requires foreign companies to open up their books to U.S. review or face delisting. That would affect hundreds of U.S.-listed Chinese firms, including Li Auto, Nio and Xpeng.
That slammed Chinese stocks in early December, including Li Auto.
Shares of Li Auto tried to set up again, but sold off hard in the market correction along with other EV makers and highly valued stocks in generally.
LI Stock: A Buy Right Now?
Li Auto stock is in a steep downtrend. As for fundamentals, Li Auto sales have seen strong growth over the last few quarters. Electric cars remain a compelling growth story.
Bottom line: Li Auto stock is not a buy now.
While Beijing has yet to crack down on EV makers, caution is warranted due to the heightened regulatory risk around China stocks.
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