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After two days of back-to-back gains post-earnings, shares of red-hot Chinese electric vehicle manufacturer Li Auto (LI -5.10%) stock finally sold off (a little) on Wednesday, giving back 2% … after gaining nearly 33%. The stock again resumed an upward journey on Thursday. 

For new investors, that’s good news, giving them a chance to buy in a bit more cheaply, before Li goes up any further.

Responding to Li Auto’s blowout Q4 earnings report on Tuesday, you see, Bank of America analyst Ming Hsun Lee reiterated his “buy” rating on the stock, and raised his price target to $57 a share. If Lee’s right about that, it means Li stock could gain another 27%.

Is Li Auto stock a buy?

What gives Lee so much confidence that Li stock will soar this year? Well, just look at the numbers it reported. EV sales nearly tripled year over year in Q4 — up 185%. Revenues rose 136%, and per share profits roughly doubled. Gross profit margins leapt 330 basis points to 23.5%.

For comparison, General Motors is grossing only 11.2% on its sales right now. Ford gets 9.2%. So for every $2 in sales that GM and Ford manage to make together, Li Auto can sell just $1 worth … and still earn more profit!

Suffice it to say, this is a very impressive performance — but is it good enough to make Li Auto stock a buy?

Actually, I think it is. Getting down to brass tacks, Li Auto is generating a staggering $6.2 billion in free cash flow on $17.2 billion in annual revenue. And while sales look set to slow in Q1, relative to Q4 rates, they’re still going to be up more than 90% year over year according to management guidance. At a valuation of just 7.3 times free cash flow, and growing double or even triple digits, Li stock seems almost too cheap to believe.

Demand any margin of safety you like, and this stock still looks like a clear-cut buy.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.

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