Ignore The EV Hype, Buy Li Automotive’s Production
Li Auto’s NASDAQ: LI Q3 report is evidence why investors should focus more on the in-production EV OEMs rather than those swing-for-the-fences names that have yet to make a vehicle. The keywords to be focused on are ramping production and rising demand, a combination that has Li Auto and others like it set up for accelerating revenue over the coming few quarters at least. Those others are still OK investments but much, much riskier, and far more prone to fickle market movements.
Li Auto Beats On Ramping Production
Li Auto had a stunning quarter in which it not only grew by a high triple-digit rate but it even exceeded the analyst consensus estimate and guided the market higher. The simple reason is that production is ramping in the face of rising demand. The company’s Q3 revenue of $1.21 billion (converted from yuan) is up 209.7% over last year because of it and is expected to grow sequentially again. The revenue topped the consensus by 700 basis points as well, a wide margin any way you look at it.
Moving down, the company was also able to widen margins on both a sequential and YOY basis. Gross margin rose 350 basis points YOY to 23.3%, 440 bps sequentially, but it fell short of the consensus by a slim margin. The only truly bad news in the report is that adjusted earnings fell short of the consensus but that is due to increased investment in new capacity and R&D for new products. On the bottom line, the company’s GAAP $0.00 in earnings beat by $0.06 while the adjusted EPS missed by $0.07.
Looking forward, the company is expecting to continue ramping production and deliveries. The company is forecasting Q4 deliveries in the range of 30K to 33K versus the 25,116 cars delivered in Q3 and for revenue to top the consensus at the low end of the range. The revenue range of U.S. $1.37 billion to $1.46 billion compares to the Marketbeat.com consensus of $1.35 and we will not be surprised to see the company exceed the figures.
Institutional Ownership In Li Auto Is Rising
The analysts have yet to come out with any commentary on Li Auto post-release but the trend in sentiment is bullish. Not only is institutional ownership on the rise but the number of analysts and institutions holding the stock is rising as well. The company picked up another three analysts since the Q2 report and we expect to see activity pick up again now that Q3 results are in the bag. The average rating is a firm Buy with only one Hold and one Strong Buy at the extremes. The Marketbeat.com consensus price target assumes about 22% of upside while the high price target of $62 assumes a more robust 70% upside is still available in this stock. Based on the Q3 results and outlook, we think both the consensus and high price target will be moving higher very soon.
The Technical Outlook: Li Auto Is On Break-Out Alert
Shares of Li Auto have been working their way higher over the past few months and look like they are about to break above a key resistance level. This level is near $21 and has kept price action in check since early 2021. A break above this level would be bullish and bring targets near $44 into play. A move above $44 would be more bullish and open the door to a sustained rally that could take the stock up to and above $60.
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