BYD Shares Remains Solid Even with a Big Drop in Trading

BYD Shares Remains Solid Even with a Big Drop in TradingBacked by U.S. investor Warren Buffett, the shares in BYD a Shenzhen based electric vehicle maker rebounded 15 percent in Hong Kong Trading last Friday which reversed some of the previous day’s steep loss after the firm declared their business fundamentals were sound. BYD’s Hong Kong listed shares fell 29 percent in its record trading, their biggest one day drop due to an unexplained slide that almost wiped out a US$ 1.2 billion of its market capitalization.

Last Friday the company’s shares in Hong Kong closed at 14.17 percent or at HK$28.60 after it hit an intraday high of HK$ 30.60 followed by its Shenzhen listed shares up 2.84 percent. BYD which is 9.1 percent owned by Buffett’s Berkshire Hathaway Energy Holdings Co. stated that it sees no sign of Buffett reducing any of his stake in the foreseeable future. Furthermore the company’s orders and output of electric cars is good and their exposure to economic problems that is unfolding in Russia is insignificant.

The company’s fundamentals remain unchanged and the only way to understand the slump is that certain investors have incurred margin calls that triggered panic selling. Despite its recovery, BYD shares is likely to head lower over the medium term as analysts sees the growth of its earnings and valuation is not justified.

Although its shares are traded 126 times in Hong Kong in the past 12 months, its earnings are much higher than the average price earnings ratio of 11.2 times. And despite a surge in its sales this year on the back of government incentives, the company said that its 2014 profits may fall 22 percent due to a slow sales of gasoline driven vehicles.

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