Is BYD’s Stock Still Attractive After European Sales Triple and Recent Valuation Swings?

Thinking about what to do with BYD stock right now? You are not alone. With the company grabbing headlines around the globe and price moves sparking fresh debate among investors, it is a natural time to consider whether BYD still offers growth, or if the risks are piling up. In just the last year, the stock has seen a 12.0% gain, and if you look even further back, that performance grows even more impressive. A massive 156.5% increase over the past five years suggests BYD has been a long-term winner. This year, shares are still up 23.5%, rebounding somewhat from a challenging summer when the stock fell more than 30% from May highs after a hefty $45B selloff. No wonder there has been pressure on the company to rebuild confidence, especially as competitors turn up the heat.

In recent months, the picture has been a mix of caution and optimism. The company’s European sales just tripled in August, hinting at huge upside as BYD’s global expansion starts to pay off. But there were also missteps, as SkyRail and discounting moves in Japan made waves, but not always for the right reasons. All of this uncertainty leaves many wondering: is BYD undervalued or still a risky bet?

Let’s take a clear-eyed look at the numbers. On a six-point valuation score, BYD passes four checks, pointing strongly to undervalued territory. However, traditional valuation is not the full story. Next, we will break down which valuation methods point to opportunity, and later, we will introduce a different angle that could help you understand BYD’s value even better.

Why BYD is lagging behind its peers

Approach 1: BYD Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s true value by forecasting its future cash flows and discounting them back to today’s worth. This approach helps investors understand what the business might really be worth based on its ability to generate cash in the future, adjusted for time and risk.

For BYD, recent figures show a last twelve months (LTM) Free Cash Flow (FCF) of negative CN¥124.3 Million. However, analysts are forecasting a major turnaround. Projections suggest the company’s FCF could reach as high as CN¥149.4 Billion within the next decade. Interim estimates show steady growth, with cash flows expected to rise to roughly CN¥61.6 Billion in 2026 and CN¥79.4 Billion in 2027, both in CN¥. These values are expected to grow further by 2035 based on Simply Wall St’s extrapolation. All values use the reporting currency, the Chinese Yuan (CN¥).

When everything is totaled up and discounted back, the DCF model calculates BYD’s estimated intrinsic value as HK$143.66 per share. With the current share price sitting some 26.0% below this level, BYD appears attractively undervalued according to this method.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for BYD.

Our Discounted Cash Flow (DCF) analysis suggests BYD is undervalued by 26.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: BYD Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies, as it provides a direct way to compare what investors are willing to pay today for a dollar of future earnings. It is particularly useful when the company is generating consistent profits, like BYD, because it ties the share price directly to the company's bottom line.

Growth expectations and risk levels both influence what is considered a "fair" PE ratio for any business. High growth prospects and stability usually justify a higher PE, while lower growth or higher risks mean investors might demand a lower multiple.

BYD currently trades at a PE ratio of 21.17x. This is above the auto industry's average PE of 18.96x and also higher than its peers’ average of 9.44x. On the surface, this may appear elevated, especially given the wider market context.

However, Simply Wall St’s proprietary "Fair Ratio" methodology factors in more than just industry averages or peer groups. It accounts for BYD’s unique growth outlook, its risk profile, profit margins, industry classification, and market capitalization to deliver a more tailored benchmark. BYD’s Fair Ratio is presently calculated at 17.45x. This means, compared to this more holistic benchmark, the current PE sits somewhat above what would be justified by these company-specific factors.

Since BYD’s PE is notably higher than the Fair Ratio, it suggests the shares are overvalued on this metric, despite strong fundamentals and growth potential.

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.

Upgrade Your Decision Making: Choose your BYD Narrative

Earlier, we mentioned there is an even better way to understand valuation, so let’s introduce you to Narratives—a smarter, more dynamic approach for investing. A Narrative is simply your story behind BYD’s numbers, where you can add your own perspective about its future, including your assumptions for fair value, revenue, earnings, and profit margins. Narratives connect this story directly to a financial forecast and, ultimately, a fair value estimate.

Found right on Simply Wall St’s Community page, Narratives give investors an easy way to see how their view stacks up. By comparing the fair value from your Narrative with the current share price, you can decide if BYD looks like a buy, sell, or hold. You receive updates whenever new company news or earnings are released. Millions of investors use this tool, making it easy to see how different perspectives shape expectations.

For example, one investor’s Narrative might project BYD’s fair value at over HK$180 per share based on aggressive global expansion, while another might set it below HK$100 due to concerns about competition.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com