BYD (SEHK:1211) has caught the attention of traders after a recent move in its share price. With the stock trending lower over the past month, questions about valuation and investor expectations are surfacing.
See our latest analysis for BYD.
Despite a bumpy ride in recent weeks, BYD’s year-to-date share price return of nearly 20% points to lingering optimism around its growth outlook. The latest one-day and 30-day dips signal some fading momentum, but the 1-year total shareholder return of 9% and triple-digit gains over five years remind us that longer-term holders have still enjoyed substantial value creation.
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With shares now trading below analysts’ targets and recent gains slowing, investors are faced with a classic dilemma: is BYD undervalued at these levels, or has the market already factored in all the company’s future potential?
Based on the current price-to-earnings (P/E) ratio of 20.6x and a last closing price of HK$103.20, BYD trades at a premium not only to its close peers but also to its own fair value benchmark.
The price-to-earnings ratio measures how much investors are willing to pay for every dollar of BYD’s earnings, making it a crucial gauge of market expectations for future profit growth. For the auto sector, this is particularly important, given the cyclical nature of demand and the rapid pace of industry change.
While the P/E of 20.6x sits slightly below the Asian Auto industry average of 21.8x, it is significantly above the peer average of 9.1x. This suggests the market is placing a higher premium on BYD, potentially expecting stronger earnings growth or a competitive edge over its rivals. Compared to the estimated Fair Price-To-Earnings Ratio of 17.3x, BYD also appears to be trading above a level that the market could gravitate toward if expectations reset.
Explore the SWS fair ratio for BYD
Result: Price-to-Earnings of 20.6x (OVERVALUED)
However, slowing recent gains and elevated valuations may leave BYD vulnerable if industry competition intensifies or if profit growth unexpectedly falters.
Find out about the key risks to this BYD narrative.
Taking a different approach, our DCF model suggests BYD shares are trading about 16% below their estimated fair value. This indicates potential undervaluation and offers a different perspective compared to the P/E argument. It encourages a closer look at whether future cash flows might be contributing to hidden value.
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 BYD 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 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.
If you see the story differently, or want to dig deeper on your own, you can build your own view in just a few minutes with Do it your way.
A good starting point is our analysis highlighting 4 key rewards investors are optimistic about regarding BYD.
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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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