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On Tuesday, Morgan Stanley (NYSE:MS) initiated coverage on WeRide Inc (NASDAQ: WRD) stock, a company specializing in Level 4 and above autonomous driving (AD) technology, bestowing an Overweight rating and establishing a price target of $23.00. The new price target suggests a forward-looking valuation based on 30 times the company's projected 2025 sales.
The investment firm utilized a probability-weighted discounted cash flow (DCF) analysis to determine WeRide's valuation, incorporating various scenarios with a 25% weighting for the bull case, a 50% weighting for the base case, and a 25% weighting for the bear case. This approach was selected to reflect the considerable volatility in both the stock and the industry.
Morgan Stanley's analysis acknowledges WeRide's position as an early mover in the high-autonomy vehicle space, which could provide a competitive edge. The firm also noted WeRide's international partnerships with shared mobility platforms. However, the assessment remains cautious of potential regulatory challenges that could affect the deployment of autonomous robo-vehicles.
The firm's valuation model indicates a belief that a discounted cash flow calculation is more suited to capturing WeRide's long-term growth potential. Given the expected fluctuations in earnings and cash flow in the short term, this method provides a more stable valuation framework.
Morgan Stanley anticipates WeRide to reach a net profit break-even point by 2027, signaling confidence in the company's future financial performance despite the current uncertainties surrounding the autonomous driving industry.
In other recent news, autonomous driving technology company, WeRide Inc., has successfully completed its initial public offering (IPO) and commenced trading on the Nasdaq Global Select Market.
The IPO saw the sale of 7,742,400 American depositary shares (ADSs), each priced at $15.50, with the potential to raise approximately $458.5 million in gross proceeds.
This figure includes the funds from the IPO and concurrent private placements, before deductions for underwriting discounts, commissions, and other offering expenses.
The IPO was facilitated by a group of underwriters led by Morgan Stanley Asia Limited, J.P. Morgan Securities LLC, and China International Capital Corporation Hong Kong Securities Limited. WeRide's One platform supports a range of autonomous driving products and services.
The company's growth and prominence in the autonomous vehicle sector were recognized when it was listed among the top ten on Fortune Magazine’s "Change the World" list in September 2023. These are recent developments for the company.
InvestingPro Insights
WeRide Inc's financial metrics and market performance offer additional context to Morgan Stanley's bullish outlook. The company's revenue for the last twelve months as of Q2 2024 stood at $50.81 million, with a gross profit of $21.23 million and a gross profit margin of 41.78%. These figures suggest a solid foundation for the company's operations, despite the challenges in the autonomous driving sector.
InvestingPro Tips highlight that WeRide's stock price has shown positive momentum recently, with a 10.76% return over the past month, quarter, and year. This aligns with Morgan Stanley's optimistic view and could indicate growing investor confidence in WeRide's potential.
It's worth noting that InvestingPro calculates a fair value of $9.84 for WeRide's stock, which is significantly lower than Morgan Stanley's $23 price target. This discrepancy underscores the speculative nature of valuations in the rapidly evolving autonomous driving industry and the importance of considering multiple perspectives.
For investors seeking a deeper understanding of WeRide's prospects, InvestingPro offers 10 additional tips that could provide valuable insights into the company's financial health and market position.
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