Owning Nio (NYSE:NIO) stock has not been easy on investors. Getting into NIO is a speculative, challenging thesis. But as they say, no guts no glory — what is hard now may become great reward later.
Fundamentally this is a startup company so for now value is not its forte. It sell at 6.6 times sales which is three times more expensive than Tesla (NASDAQ:TSLA).
In March, NIO stock collapsed soon after it appeared in a special report on 60 Minutes. That sparked an influx of Main Street investors who piled into the stock only to set it up for the perfect failure that followed. So in early April, I wrote about the opportunity to trade it but only if it took out $5.75 per share, which it never did. So is it now the better time trade it it. Yes, but the answer is more complicated than that.
The TV show caused the stock to spike in March to $10, only to deflate and fall back to the breakout level and below. So NIO now sits 55% lower than in the glow of the 60 Minute exuberance and more than 70% below its all-time highs.
Clearly this is a broken stock for now. But the verdict about the company also being broken won’t come for long while.
So investing in it cannot be time sensitive — the success of it will need time to unfold. Electric vehicles are gaining momentum but are still far from ubiquity and are way behind the internal combustion engines. This is a complicated process, as it requires establishing the support infrastructure even with the great headway there so far.
Tesla did most of the heavy lifting so that Companies like NIO and even the giant manufacturers like General Motors (NYSE:GM), Ford (NYSE:F) and even Volkswagen can simply walk through the door that Elon opened.
Be Patient in NIO Stock
Patience is a virtue for Nio investors and they probably are shocked to see new all time lows with it trading below its initial day of public life. But that is the price we pay when we bet on speculation. I don’t mean that it’s punishment, these are the ups and downs that go hand in hand with betting on the next new thing: e-cars.
Last year, NIO probably stole bids from TSLA when headlines broke out about the Saudi Arabia Fund being interested in NIO. This was the direct result of the infamous Elon Musk tweet of funding secured.
Clearly Nio stock had its moments, as it came out of the gate like a race horse. But it quickly faded, and within a month it had broken below $6 per share. It did put in great efforts to regain momentum, but the breakout from $8 per share failed in December. This perhaps was bad timing, as the whole stock market was in a sharp correction at the time.
Nevertheless, NIO fell back into prior support. The TV bit gave it another shot in the arm to try for the breakout, and this one went farther. Unfortunately for the bulls, investors hated the March earnings report. The stock fell off a cliff, and here it is sitting on new all time lows.
Technically, there is little to discern from the chart with regards to support since this is literally off the charts. But going long here can be justified for two groups.
First, investors who believe in the global adoption of the e-car movement. They buy NIO here and assume that it will be one of the winners for the very long term. Or second, traders who are looking to profit shorter term from a miraculous bounce to prior levels. These tactical trades are tricky since there are few downside clues. They can easily turn a trade into an investment without proper management.
Assuming the stock will start rising again, there will be resistance at $4.40, $4.55, $4.70. There are many other resistance line above those but it’s only fair to let the bulls prove themselves capable of recovering the $5 line first before looking at higher levels for now.
In summary, Nio has the opportunity to be a winner of the electric car movement for the long term. But this thesis will require patience and intestinal fortitude to see red before green — pun intended. As for the tactical trade, there are better tickers for that.
Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. You can follow him as @racernic on Twitter and Stocktwits.