Those who invested in China’s Nio (NYSE:NIO) in the months following the electric car maker’s September 2018 IPO have had their patience sorely tested. After topping $10 in March, Nio stock fell off a cliff. Between March and the start of October, it lost 87% of its value. However, since the start of November, the price of Nio stock has been in recovery mode. It closed on Monday at $2.48, which is still a fraction of its value just 10 months ago, but that represents a 3.77% gain on the day. Since the start of November, it is now up 71%.
If you bought Nio stock at the end of October, when it seemed things couldn’t possibly get any worse for the so-called Tesla (NASDAQ:TSLA) of China — congratulations. Your investment has performed quite well since then. The question is, does Nio stock have the momentum to continue its recovery?
2019 Has Not Been Kind to NIO Investors
2019 started off looking like it was going to reward those who had snapped up NIO shares after the company’s post-IPO slump. Someone who bought Nio stock at $6.47 at the close of 2018, would have been feeling pretty pumped when it closed at $10.16 on March 5. That’s a nice 57% gain.
However, just a day later, Nio stock dropped like a rock, losing over 30% in just two days. The company reported Q4 earnings after the market closed on March 5, with a bigger than expected loss and a forecast of lower deliveries. The Chinese government’s decision to cut electric vehicle subsidies were hitting the EV market, and that was was hitting Nio’s sales. The company went from bragging about knocking off Tesla as the luxury EV king in China, to announcing it was cancelling plans to open its own factory in Shanghai.
With NIO stock on a downhill slope, University of San Francisco management professor William Riggs told CBS:
“The electric vehicle market is in the trillions of dollars … And I think it’s still to early to say if Nio will be the Tesla killer, or if Tesla will win out or if there is another emergent company.”
March was a huge drop for NIO, but things got steadily worse through most of 2019. By Oct. 1, Nio stock was trading for $1.32 after being pummeled when Q2 earnings once again disappointed analysts. After a month of bouncing around, NIO has been on the rebound since the start of November.
Bottom Line on Nio Stock
Nio is one of those companies that represents a true roll of the dice at this point. The potential for the company to take off is there. InvestorPlace’s Luke Lango notes that market trends that had been holding the electric car maker back are now aligning in its favor.
However, there is real risk that NIO may yet implode. There are simply so many factors that could trip it up, from a recession that throws cold water over sales of luxury EVs, to Tesla’s ramp up in China, and the risk of stiffer competition from other Chinese manufacturers.
You can see this tension perfectly illustrated by the projections from financial analysts. Among the 13 analysts offering 12-month projections for CNN Business, NIO has a $14.36 median price target. Nio’s stock price has never come close to that level. If it were to hit that target, it would be huge for investors. Even the lowest 12-month estimate of $6.41 represents a nearly 157% upside from the current price. Yet, of those 13 analysts, only two actual recommend buying Nio stock.
If you already own it, NIO is worth holding onto. If you’re looking for an investment with long-term growth potential, buying Nio stock now could pay off handsomely — or it could leave you with nothing.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
