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Wondering if BYD at HK$98 is still a smart way to ride the EV and battery wave, or if most of the upside is already priced in? You are not alone.
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The stock is roughly flat over the last month at +0.1%, but a 13.9% gain year to date and 44.1% over three years shows investors have already been willing to pay up for its growth story, even after a recent 2.1% dip this week and a more modest 9.1% return over the past year.
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Recent headlines have focused on BYD aggressively expanding exports into Europe and Southeast Asia and ramping up its battery and EV production footprint globally, adding fuel to the long term growth narrative. At the same time, rising competition in China and shifting government policy have kept some investors cautious, which helps explain the more modest near term price action.
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Right now, BYD only scores 1 out of 6 on our valuation checks, suggesting the market might not see it as a clear bargain yet and that different valuation methods could tell very different stories. Toward the end of this article we will look at a more complete way to think about what BYD is really worth.
BYD scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
A Discounted Cash Flow model estimates what a business is worth by projecting its future cash flows and discounting them back to today, to reflect risk and the time value of money.
For BYD, the latest twelve month free cash flow is negative at roughly CN¥29.1 billion, reflecting heavy investment in growth. Analysts and extrapolated estimates, however, point to a sharp turnaround, with free cash flow expected to reach about CN¥101.3 billion in 2035, based on a 2 Stage Free Cash Flow to Equity model that blends explicit forecasts with longer term growth assumptions.
When all projected cash flows over the next decade and beyond are discounted back, Simply Wall St’s DCF model arrives at an intrinsic value of around HK$111.51 per share. With the stock trading near HK$98, this implies BYD is about 12.1% undervalued on this cash flow view. This suggests the market may be underestimating the long term earnings power of its EV and battery businesses.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests BYD is undervalued by 12.1%. Track this in your watchlist or portfolio, or discover 904 more undervalued stocks based on cash flows.
For profitable companies like BYD, the price to earnings, or PE, ratio is a useful way to gauge how much investors are willing to pay for each unit of current earnings. In general, faster growth and lower risk justify a higher PE, while slower or more uncertain earnings usually warrant a lower multiple.
BYD currently trades on a PE of about 21.1x. That is above the peer average of roughly 8.9x, but only modestly higher than the broader Auto industry average of around 18.7x. This suggests investors are paying a premium for BYD’s scale and growth prospects. Simply Wall St’s Fair Ratio for BYD is 14.6x, a proprietary estimate of what its PE should be given its earnings growth profile, profit margins, industry, market cap and risk factors.
This Fair Ratio goes beyond simple peer or industry comparisons by adjusting for company specific drivers rather than assuming all automakers deserve similar valuations. Comparing the Fair Ratio of 14.6x with the actual 21.1x suggests BYD’s shares trade at a noticeable premium to what its fundamentals alone might justify.
Result: OVERVALUED
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1450 companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a smarter way to connect your view of BYD’s future with the numbers you see on screen. A Narrative is simply your story for the company, where you spell out how you think its revenue, earnings and profit margins will evolve, and the fair value that follows from that view. On Simply Wall St’s Community page, millions of investors use Narratives as an easy tool that links a company’s story to a detailed financial forecast, and then to a clear fair value estimate. Narratives then help you decide when to buy or sell by constantly comparing that Fair Value to the current Price and updating it dynamically as new news, earnings or guidance arrive. For example, one BYD Narrative might assume very strong international expansion and assign a high fair value, while another more cautious Narrative might expect slower growth and assign a much lower fair value.
Do you think there’s more to the story for BYD? 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.
Companies discussed in this article include 1211.HK.
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