Is Chery Automobile (SEHK:9973) A Bargain After Its FREELANDER 8 Cabin Reveal?

Chery Automobile (SEHK:9973) is back in focus after partner brand FREELANDER detailed the intelligent cabin of its upcoming FREELANDER 8 SUV ahead of a planned Middle East launch in Abu Dhabi.

See our latest analysis for Chery Automobile.

Chery Automobile’s share price has been under pressure despite a busy product calendar, with the stock at HK$23.86 after a 1-day share price return that declined 2.13% and a year to date share price return that declined 20.99%. This points to fading momentum as the market reassesses growth prospects and risks.

If this kind of product pipeline has you thinking about where else growth stories might be emerging, now could be a good time to widen your search with 34 robotics and automation stocks

Bulls point to Chery Automobile’s growing NEV and premium partnerships, while bears highlight the recent share price slide and execution risk across so many launches. How do the current valuation signals stack up against those competing stories?

Price-to-Earnings of 6.5x: Is it justified?

On current numbers, Chery Automobile trades on a P/E of 6.5x, which, based on Simply Wall St’s checks, screens as good value versus both its own fair ratio and peers.

The P/E multiple reflects how much investors are paying for each unit of earnings, which matters for a company like Chery Automobile that is already profitable and generating what is assessed as high quality earnings. With reported net income of HK$18,539.0m and return on equity of 34.5%, the market is attaching a relatively low earnings multiple to a business that has been growing earnings and is forecast to keep growing, albeit at a single digit rate each year.

Compared to the estimated fair P/E of 8.9x, the current 6.5x suggests the market is pricing Chery Automobile below the level that Simply Wall St’s fair ratio work indicates investors could eventually pay if earnings and return metrics remain consistent. The gap is even more striking beside the peer average P/E of 31.8x and the Asian Auto industry average of 14.4x, where Chery’s multiple sits well below both, pointing to a sizeable discount that could narrow if sentiment improves.

Explore the SWS fair ratio for Chery Automobile

Result: Price-to-Earnings of 6.5x (UNDERVALUED)

However, steady share price declines and execution risk across multiple brands and launches could quickly challenge the idea that Chery Automobile’s current P/E discount is attractive.

Find out about the key risks to this Chery Automobile narrative.

Another view on Chery Automobile’s value

There is also the SWS DCF model, which values Chery Automobile’s future cash flows at HK$63.84 per share, compared with the current HK$23.86 price. That points to a large gap that this model treats as undervaluation. However, it also raises a key question: how realistic are those cash flow assumptions?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Chery Automobile for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 248 high quality undervalued stocks. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.

Next Steps

With Chery Automobile sending mixed signals on valuation, sentiment and execution risk, now is the moment to review the numbers yourself and decide how the balance of risks and rewards sits for your portfolio, starting with the 5 key rewards and 1 important warning sign

Looking for more investment ideas beyond Chery Automobile?

If Chery Automobile has sharpened your focus on value and quality, do not stop here. Broaden your watchlist with a few targeted screens that surface different types of opportunities.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com