LI - 3 EV Stocks That Could Be Multibaggers in the Making: July Edition
2024-07-18 07:00:00 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
EV stocks have largely been depressed in the last 12 to 18 months. The fundamental reasons include macroeconomic headwinds, slower than expected EV adoption and competition. I can say with some conviction that several EV players will perish in the next few years on the back of cash burn and intense competition.
However, fundamentally strong EV companies will survive and continue to grow at a healthy rate. It’s therefore time to separate the winners from the losers. Further, given the valuations, it makes sense to consider exposure to quality EV stocks and hold with patience.
I have no doubt that the likes of Tesla (NASDAQ: TSLA ) and BYD Company (OTCMKTS: BYDDF ) will make a strong comeback. However, this column is focused on the relatively smaller companies that can be massive value creators. Investors should have a long-term investment horizon for 10x to 20x returns from these EV stocks.
Let’s discuss the fundamental reasons to be bullish.
Li Auto (LI)
Li Auto (NASDAQ: LI ) is among the EV stocks that can deliver 10x to 20x returns by the end of the decade. This view is underscored by strong fundamentals, continued product launches and focus on innovation. It’s worth noting that LI stock currently trades at a forward P/E of 18.9 and valuations are attractive considering the growth momentum.
The first point to note is that Li Auto ended Q1 2024 with a robust cash buffer of $13.7 billion. Further, the EV company had reported free cash flow of $6.22 billion. Therefore, financial flexibility is high for investment in research and development. At the same time, Li Auto has been aggressively expanding its retail network in China that’s likely to support growth.
I must add here that Li Auto is likely to launch level 3 self-driving technology by 2025. Global expansion also seems to be on the cards with focus on the Middle East . With a technological edge and multiple catalysts for revenue growth, I am bullish on LI stock.
Blink Charging (BLNK)
After an extended period of correction, Blink Charging (NASDAQ: BLNK ) stock has surged by nearly 55% in the last six months. The rally has been backed by positive business developments and I expect the uptrend to sustain.
For Q1 2024, the company reported revenue growth of 73% on a YOY basis to $37.6 million. It’s worth noting that there is ample headroom for EV charging infrastructure penetration in the United States and Europe. With a big addressable market, I expect healthy revenue growth to sustain for Blink Charging.
At the same time, Blink has addressed the challenge related to cash burn. With operating leverage and cost cutting, the EV charging company is targeting positive adjusted EBITDA by December. EBITDA margin expansion is likely to sustain in the coming years as services revenue swells.
In another important development, Blink received “ In Process ” designation granted by the Federal Risk and Authorization Management Program for its EV charging solutions. This takes the company closer to being a cloud-based EV charging solutions provider to the U.S. government.
Lithium Americas (LAC)
When talking about electric vehicle stocks, it’s difficult to ignore lithium miners. In the last 12 months, lithium stocks have plunged on the back of a steep decline in the metal prices. However, if EV adoption remains in an uptrend, lithium will make a comeback. I consider Lithium Americas (NYSE: LAC ) as a high-risk bet. Having said that, some exposure can be considered as 10x to 20x returns seem likely once lithium trends higher.
It’s worth noting that Lithium Americas is the owner of the Thacker Pass asset. In the long term, the asset is a cash flow machine. To put things into perspective, Thacker Pass has an after-tax net present value of $5.7 billion. Once both phases are operational, the asset has the potential to deliver an average annual EBITDA of $2 billion.
The positive point to note is that Lithium Americas is fully financed for the construction of the first phase of the project. It’s a matter of holding with patience when sentiments are over bearish. A strong reversal from undervalued levels is on the cards.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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