What happened
Shares of Chinese electric carmaker Li Auto (LI 0.11%) tumbled 9.5% through 11:25 a.m. ET Tuesday, despite the company crushing earnings forecasts for the second quarter -- and giving better-than-expected guidance as well.
Heading into the quarter, analysts had guessed Li might earn as little as $0.12 per share on sales of just over $3.8 billion. In fact, Li earned three times the expected number -- $0.38 per share -- and its sales were well above expectations as well at $3.95 billion.
NASDAQ: LI
Key Data Points
So what
Investors may have been spooked by news that China's national imports and exports both declined steeply in July, alongside reports that manufacturing activity in the country has declined for four straight months. And broadly speaking, this is a concern. At the same time, however, GDP growth in the country is still on target for 5% this year.
And whatever happens at the macro level, if you zoom down to a micro level and take a good hard look at Li Auto, well ... by any objective standard, Li Auto's results were superb:
- Li tripled the number of electric cars it delivered in Q2 2023, as compared to Q2 2022, to 86,533 units.
- Revenue grew even faster, up 228% to $4 billion.
- Gross margins inched 30 basis points higher to 21.8%, operating profit margins flipped from negative to positive, and net income likewise. By the time Li reached its bottom-line results, earnings were $319 million, up by nearly half from a year ago.
Now what
Nor did the good news end there. Free cash flow at the automaker was a powerful $1.3 billion -- multiples better than last year's FCF. And management is forecasting even more growth in its future, with EV deliveries shooting past 100,000 units this coming third quarter and revenues continuing to grow by leaps and bounds -- to as high as $4.5 billion or even $4.6 billion.
With the company firing on all cylinders, the stock valued at less than 18 times free cash flow -- and financial records backing up these results, with Li boasting more than $10 billion in the bank -- it really looks to me like Li Auto is turning into an automotive winner in China.
Selling the stock on results like these is inadvisable, to say the least.
