Why Li Auto Stock Just Went Up 6%

Shares of the Chinese electric car maker Li Auto (LI -0.17%) jumped 6% higher by 11 a.m. ET Monday. That’s likely in part because of China’s stimulus effort to jump-start its economy and boost demand for electric cars and other consumer goods, which is helping many Chinese stocks today.

But partly the reason is City Groupwhich just raised its price target on Li shares for the second time in a week.

Why Citi keeps changing its price target

As The Fly reports , on Tuesday last week, Citi analyst Jeff Chung raised his price target on Li shares from $21.60 per share to $25.50 — an 18% upside — citing a “headwind on the back of strong sales in the electric vehicle sector”. Today’s bump is similar, if not quite as large, from $25.50 to $29.60.

It also has a different rationale. Raising the price target by another 16% this morning, Chung said a future adze The Robotaxi event will raise the profile of electric vehicle stocks in China. The analyst sees this as a happy time as China heads into the “peak season of car sales”.

Is Li Auto stock a buy?

So far, so good. But here’s where things get a little less good: Li shares have moved steadily higher since Chung raised his price target last week — which makes sense.

However, despite the increase in target price, Chung is not convinced Li stock is a buy. Citing an “outdated” lineup of vehicles for sale and “peer competition,” he rates Li stock only neutral and says the stock is just fairly valued — meaning it’s not cheap enough to buy.

I’m inclined to agree.

On the one hand, Li is generating quite a bit of money right now. The stock trades for just 10 times trailing free cash flow, which is half the valuation to generally accepted accounting principles (GAAP) net earnings of 20. On the other hand, analysts polled by S&P Global Market Intelligence see free cash flow falling this year and long-term growth estimates are just 10 percent. On a P/E ratio of 20, calling this stock even just “fair price” might be generous.