Li Auto (NASDAQ: LI) stock surged 30% last month after it reported tremendous results for 2023 -- sales up 173.5% year over year, free cash flow growing to $6.2 billion, gross profit margins expanding, and net income flipping from a 2022 loss to a 2023 profit of $1.7 billion. No sooner had this Chinese automaker stomped the accelerator, though, than investors slammed on the brakes.

Worries that sales might slow in Q1 2024, reinforced by a weak February deliveries report, sent Li stock tumbling. But according to investment banker Morgan Stanley, this sell-off just set up Li stock for a rebound. One year from now, Li shares should be worth as much as $74 apiece, and if that happens, investors who bought at Tuesday's closing price would get an 86% profit.

Morgan Stanley is taking an aggressive position here, but it's not without merit. At $40 billion in market capitalization, Li stock does look undervalued relative to its $6.2 billion in free cash flow. The stock's price-to-free cash flow ratio is a cheap 6.5. For comparison, (NASDAQ: TSLA) stock generated only about $4.3 billion in FCF last year, but its stock costs $565 billion, yielding a P/FCF of 131.

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Source Fool.com