Thinking about what to do with your BYD shares? You are not alone. Whether you have been watching this stock climb for years or are just tuning in, the past few months have given investors plenty to talk about. After a stellar 20.8% gain so far this year, BYD has pulled back slightly in the last month, down 1.6%, while still holding onto a 7.8% return for the past year. Looking even further back, the longer-term performance is even more striking, with shares up over 109% in the last five years.
Some of this momentum has come alongside growing optimism about BYD’s expanding role in the global EV marketplace. Recent partnerships and new model launches have kept the company in the news, with industry watchers highlighting its aggressive push into overseas markets. At the same time, renewed concerns over government policy shifts and competitive pricing pressures have reminded investors to keep risks in mind.
So is the recent dip a buying opportunity, or could more volatility be ahead? To help answer that, we will dig into BYD’s current valuation. The company currently gets a valuation score of 3 out of 6, indicating it is undervalued on half of the key checks analysts look for. In the next section, we will walk through what those valuation checks include, and just as important, reveal a more insightful way to judge whether BYD stock is a bargain beyond the numbers alone.
Why BYD is lagging behind its peers
The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future free cash flows and then discounting those cash flows back to today’s value. This helps investors understand whether the stock is currently undervalued or overvalued based on fundamental performance rather than short-term price swings.
For BYD, the latest twelve months free cash flow stands at a negative CN¥124 million. Despite this recent dip, analysts expect the company’s cash flow to rise sharply, projecting annual free cash flow of up to CN¥68.2 billion by 2026 and CN¥78.8 billion by 2027. Further out, projections estimate BYD may generate more than CN¥121 billion in free cash flow by 2035. These figures highlight expectations of strong, ongoing growth in the business.
Based on these forecasts, the DCF analysis indicates a fair value of HK$122.71 per share. With shares trading at roughly 15.2% below this intrinsic value, the model suggests BYD is currently trading at a notable discount and may be undervalued on a long-term basis.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests BYD is undervalued by 15.2%. Track this in your watchlist or portfolio, or discover more undervalued stocks.
The price-to-earnings (PE) ratio is commonly used to value profitable companies because it directly relates the company’s share price to its earnings. It shows how much investors are willing to pay for each dollar of profit. For businesses generating steady profits, the PE ratio provides a quick snapshot of whether a stock is relatively cheap or expensive compared to the profits it delivers.
The “right” PE ratio for a stock depends on a range of factors, with growth expectations and the level of risk being the most important. Companies expected to grow earnings rapidly or those with stable, predictable profits tend to command higher PE multiples. Conversely, if a business faces more risk or limited growth, investors usually expect to pay a lower multiple.
Right now, BYD trades at a PE ratio of 20.7x. For context, this is a bit higher than the average among automotive peers, which stands at 9.6x, and also above the industry-wide average of 18.8x. However, neither of these benchmarks tells the full story. Simply Wall St’s proprietary Fair Ratio tool estimates BYD’s fair PE at 17.3x, taking into account not only industry and peer performance, but also BYD’s own growth prospects, margins, market cap and risk profile. This approach offers a more nuanced, comprehensive guide than simple peer comparisons.
Comparing BYD’s actual PE ratio of 20.7x to its fair value of 17.3x, the stock trades at a premium relative to its current fundamentals. This suggests the market is optimistic about BYD’s outlook, but investors should be aware that it is priced above what fair value metrics indicate.
Result: OVERVALUED
PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is an even better way to understand valuation. Let’s introduce Narratives. A Narrative is a simple, story-driven approach that lets you connect your own perspective on a company’s future with the numbers driving its fair value, including your expected revenue, earnings, margins, and growth rates. Narratives link BYD’s business story to a forecast, and then to an up-to-date valuation, so you can see if the stock price matches your view.
This tool is available on Simply Wall St’s Community page, where millions of investors share, compare, and update their Narratives as new information comes out. Narratives automatically refresh when new news or results are announced, keeping your estimates relevant. By comparing your Narrative’s fair value to the current share price, you gain a clear, personalized signal on when to consider buying or selling.
For example, two different investors may each create a Narrative for BYD, one expecting massive growth and seeing fair value above HK$150, while another is more cautious and estimates fair value closer to HK$90. Narratives make it easy to clearly see these perspectives and help you decide where you fit in.
Do you think there’s more to the story for BYD? Create your own Narrative to let the Community know!
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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