-
Wondering whether BYD’s current share price actually lines up with its underlying worth, or if the market is missing something you can use to your advantage.
-
BYD shares closed at HK$94.55, with a 7 day return of a 4.3% decline and a 30 day return of a 3.3% decline, while the 1 year return stands at 14.1% and the 3 year and 5 year returns are 26.9% and 19.2% respectively.
-
Recent news around electric vehicle demand, competition among global automakers, and policy support for new energy vehicles has kept investor attention on companies like BYD. These themes help frame how the market is currently thinking about growth potential and risk for the stock.
-
BYD records a valuation score of 1 out of 6, which suggests only one of six valuation checks signals the shares as undervalued. Next, we will look at what different valuation approaches say about that, before finishing with a way to think about value that goes beyond the usual ratios.
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, or DCF, model projects a company’s future cash flows and then discounts them back to today’s value to estimate what the business might be worth right now.
For BYD, the model used is a 2 Stage Free Cash Flow to Equity approach, working in CN¥. The latest twelve month free cash flow is a cash outflow of CN¥29.1b, so the model relies on future projections. Analysts provide estimates for several years, and Simply Wall St then extrapolates further to build a 10 year path. By 2035, projected free cash flow is CN¥101.3b, with discounted values provided for each year along the way.
Bringing all those projected cash flows back to today gives an estimated intrinsic value of CN¥115.23 per share, compared with the current share price of HK$94.55. On this basis, the DCF suggests BYD trades at about a 17.9% discount, which indicates that the shares are undervalued relative to these cash flow assumptions.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests BYD is undervalued by 17.9%. Track this in your watchlist or portfolio, or discover 877 more undervalued stocks based on cash flows.
For a profitable business like BYD, the P/E ratio is a useful way to relate what you pay for each share to the earnings the company generates per share. It gives you a quick sense of how much of those earnings the market is currently willing to pay for.
What counts as a “normal” P/E really depends on how the market views growth potential and risk. Higher expected growth or lower perceived risk are often associated with a higher P/E, while slower expected growth or higher risk tend to be associated with a lower P/E.
BYD currently trades on a P/E of 20.13x. That is above the auto industry average of 18.22x and above a peer group average of 8.75x. Simply Wall St also calculates a proprietary “Fair Ratio” for BYD of 13.97x. This Fair Ratio is designed to reflect the P/E you might expect for BYD given factors such as its earnings growth profile, industry, profit margins, market cap and company specific risks.
Because the Fair Ratio incorporates those fundamentals, it can be more informative than a simple comparison with peers or the broad industry. Comparing BYD’s current P/E of 20.13x with the Fair Ratio of 13.97x suggests the shares trade above that fair level.
Result: OVERVALUED
P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1443 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 Narrative is simply your story about a company, written in numbers, where you set what you think is a fair value along with your own expectations for future revenue, earnings and margins.
This story then links directly to a financial forecast and, from there, to a fair value that you can compare with the current share price to help you decide whether BYD looks attractively priced or expensive based on your view.
Narratives are available on Simply Wall St’s Community page, used by millions of investors, and they update automatically when new information such as news or earnings is added, so your view does not get stuck on old data.
For BYD, one investor might build a Narrative that assumes strong long term demand and arrives at a high fair value. Another might focus on competition and pricing pressure and settle on a much lower fair value. Seeing those side by side helps you decide which story you think is more realistic.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com