So far this year, electric vehicle (EV) sector stocks have underperformed the broader market after generating staggering returns last year. It appears that investors have grown wary of the high valuation of growth stocks, and fears of rising inflation rates and increasing competition in the EV space have also contributed to the sell-off.
However, every correction can be viewed as a buying opportunity for investors with long-term horizons. So, here we look at two China-based EV stocks, Li Auto (LI) and Niu Technologies (NIU), to analyze which is a better bet right now.
China is the largest EV market in the world today. Total EV sales in the country were approximately 1 million units in 2020. EV sales are now forecast to rise to five million units by 2025, 10 million units by 2030, and 20 million by 2040. The increase in purchasing power of China’s middle class and a rapidly expanding addressable market are two key drivers of top-line growth for f Li Auto and Niu Technologies.
Click here to checkout our Electric Vehicle Industry Report for 2021
Li Auto stock is down 61% from record highs
Shares of Li Auto are trading at $17, which is more than 60% lower than its $47.70 all-time . The stock is currently valued at a $16.5 billion market cap. Li Auto designs, develops, manufactures, and sells smart electric SUVs (sport utility vehicles) in China.
In Q4 of 2021, Li Auto’s sales were up 65% year over year at $635.5 million. It reported a $12 million operating loss. However, the company generated $245 million in operating free cash in the quarter ending December 31, 3020. In 2020, Li Auto reported sales of $1.45 billion and an operating loss of $103 million.
In the first quarter of 2021, the company expects its shipments to rise by more than over 300% year over year. Analysts expect LI’s sales to rise by more than 300% also, to $508.53 million in Q1.
For 2021, Wall Street forecasts sales to more than double to $2.94 billion, representing a 5.6x forward price to sales multiple, which is reasonable for a growth stock. LI’s top-line growth is also estimated to be an impressive 78% year over year in 2022. The company is forecast to improve its profit margins from a $0.28 loss per share in 2020 to earnings of $0.18 in 2022.
Niu Technologies stock is trading 41% below record highs
Niu designs, manufactures, and sells smart electric scooters in China. While most China-based EV stocks are unprofitable, Niu reported an $0.41 adjusted profit per share in 2020. Noted investor Cathie Wood is also bullish on Niu Technologies currently, given the stock is trading 40% below record highs.
In 2020, Niu’s sales were up 18% year over year at $375 million. Analysts now expect its revenue growth to accelerate by 77.6% to $675 million in 2021 and by 46.4% to $988 million in 2022. Wall Street also expects Niu to increase its earnings from $0.41 in 2020 to $1.32 in 2022.
Given its $2.24 billion market cap, Niu stock is trading at a 3.31 forward price to sales multiple and a 35.4x price to earnings multiple, which is attractive given its growth expectations.
The verdict
Both Niu and Li Auto stocks have lost steam and are now available at a lower valuation. The two companies remain top bets for contrarian and growth investors. However, Niu’s stellar profit margins and lower multiples make it a better buy today. Further, Niu continues to expand its product portfolio and might soon enter new markets, such as North America and Europe, which will drive its revenue higher in the coming decade.
Click here to checkout our Electric Vehicle Industry Report for 2021
LI shares rose $0.06 (+0.35%) in after-hours trading Tuesday. Year-to-date, LI has declined -41.00%, versus a 11.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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