• If you are wondering whether Li Auto's share price still reflects its real worth, or if the market has pushed it too far in one direction, this article is here to help you size up the value story.
• Li Auto's recent returns include a 0.5% decline over 7 days, a 3.6% decline over 30 days and year to date, and a 29.0% decline over the past year, which may have changed how some investors think about its risk and return profile.
• Recent coverage has continued to focus on Li Auto's position in the electric vehicle space and how investor sentiment around the sector is reflected in its share price. This broader context helps explain why the stock's performance has been under close watch, especially after a longer period that also shows a 33.7% decline over 3 years and 45.3% over 5 years.
• Right now, Li Auto scores a 3 out of 6 on our valuation checks. We will look at what different methods say about its price, and then finish with a more complete way to think about valuation that ties everything together.

Approach 1: Li Auto Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes estimates of the cash a company could generate in the future, then discounts those projections back to today to arrive at an estimated value per share.

For Li Auto, the model used is a 2 Stage Free Cash Flow to Equity approach based on cash flow projections in CN¥. The latest twelve month free cash flow is a loss of CN¥9,532.5m, and analysts and internal estimates project positive free cash flows over the coming years, including CN¥14,363m in 2030. Between 2026 and 2035, the model uses a mix of analyst forecasts and extrapolated figures from Simply Wall St to build a ten year cash flow path.

After discounting these projected cash flows back to today, the DCF arrives at an intrinsic value of US$21.81 per share. Compared with the current share price, this implies the stock is 23.8% undervalued based on this model alone.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Li Auto is undervalued by 23.8%. Track this in your watchlist or portfolio, or discover 875 more undervalued stocks based on cash flows.

Approach 2: Li Auto Price vs Earnings

For profitable companies, the P/E ratio is a useful way to think about what you are paying for each dollar of earnings, because it ties the share price directly to the company’s current profitability.

What counts as a normal or fair P/E often comes down to how quickly earnings are expected to grow and how risky those earnings are. Higher growth or lower perceived risk can justify a higher P/E, while slower growth or higher uncertainty usually lines up with a lower one.

Li Auto currently trades on a P/E of 25.14x. That sits above the Auto industry average P/E of 17.93x and above the peer group average of 23.05x. On simple comparisons, the stock therefore carries a higher earnings multiple than many industry peers.

Simply Wall St also estimates a Fair Ratio of 29.27x. This is a proprietary P/E level that reflects factors like Li Auto’s earnings growth profile, profit margins, industry, market cap and key risks, rather than just comparing it with broad averages.

Because the Fair Ratio of 29.27x is higher than the current P/E of 25.14x, this approach indicates Li Auto shares are trading below the level implied by those fundamentals.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1426 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Li Auto Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of Li Auto with the numbers behind it.

A Narrative is your story about the company, where you spell out what you think could happen to its revenue, earnings and margins, and link that story to a forecast and a fair value estimate.

On Simply Wall St, Narratives are available on the Community page and are designed to be easy to use, so you can see how your view translates into a fair value, compare that with the current price, and decide whether the gap between the two is big enough for you to act.

Narratives update automatically when new information such as news or earnings is added to the platform. You might see one Li Auto Narrative that assumes a relatively high fair value and strong future metrics, while another assumes a much lower fair value with more conservative estimates, reflecting how different investors can look at the same company in very different ways.

Do you think there's more to the story for Li Auto? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.