China's bubbly stock market is making heroes out of some unlikely companies. And none more so than BYD Co. (1211.HK), in which Warren Buffett plans to take a 10 percent stake.

BYD has a much-hyped project to manufacture electric vehicles. Its shares have surged 140 percent in the past three months and 440 percent in the past year. They now trade at 74 times of current year profit and 54 time of next year earnings. That is double the level of capital goods companies and four times the multiple on which Chinese automakers trade.

BYD seems to have become the poster child for environmentally friendly transport. For all that, it has not yet sold any electric cars in its home market, though it has hundreds of trial customers in the government. The project may have real substance and it's fair to say that Buffett has probably done his homework. But meaningful earnings are at least two to three years away, assuming those trials are successful.

Meanwhile, BYD's real business is producing conventional cars and cell phone components. These do not support the company's stratospheric multiple. Investors seem to have bid up the shares, taking their lead from Buffett. But they should remember that Buffett bought in at around HK$7 a share, and now the stock is trading at HK$42. Moreover, Buffett's investment is under consideration in Beijing, and the company does not expect a decision until October.

But that doesn't seem likely to puncture the bullish mood. BYD's stock surged as much as 9 percent this week after it bought a bus maker in a pretty uninspiring deal. This is a sector where there is overcapacity. BYD's deal got pulses racing because -- surprise, surprise -- the company talked about using its electric propulsion technology to power buses.

Of course, Buffett may be on to something and BYD's chairman Wang Chuanfu may be right when he says he sees BYD as the largest auto maker in China in 2015 and the leading player in the world in 2025, with annual output surpassing 10 million vehicles. But this remains a mid-sized, highly geared company.

When stock markets bubble up, investors lose the ability to discriminate between hype and reality. And so it seems with China. Investors in BYD might ponder how much more bullish they are than the Sage of Omaha in the prospects for what remains a car and battery maker, and fasten their seat belts. (For previous columns, Reuters customers can click on [GU/]

(Editing by David Evans)