Since I last wrote about Nio (NYSE:NIO) in December, the stock has been on something of a roll.
Naturally, traders took that as a cue to prove me wrong. At one point on Jan. 21, the shares had doubled from those December levels. Since then, the Wuhan coronavirus has taken shares down. They opened for trade Jan. 28 at $4.25, 20% off the month’s high. But they’re still 50% higher than when I slammed them. The market capitalization is about $3.7 billion.
What Do I Know?
Traders in a frothy market are going to do what they want, but here is what I know.
Nio took in about $242 million during its September quarter. On that revenue, it lost about $352 million. By the end of the period it had about $274.3 million in cash, cash equivalents, restricted cash and short-term investments. How long will that last?
The company makes a nice electric car. It’s also good at lighting money on fire.
The good news is that the bad news wasn’t quite as bad as expected. The loss was 23% less than the previous quarter. Some analysts expect an even bigger loss for the next quarter.
The gain has been so strange that Nio was moved to comment on it Jan. 15, when the speculation was near its height. While not tackling the speculation directly, the company did say “it has explored financing and strategic opportunities with Guangzhou Automobile Group (OTCMKTS:GNZUF).” GAC makes cars for five other foreign companies, but it’s best known for its joint venture with Honda (NYSE:HMC).
In short, the cavalry may indeed be coming to the rescue, something I did not expect when I wrote about the company in November. But what will be left of an equity investment in Nio once the cavalry departs is unclear. Some of the existing debt from Tencent Holdings (OTCMKTS:TCEHY) and founder William Li is convertible into stock.
Why Buy Nio?
The bullish case for Nio is offered by InvestorPlace’s Todd Shriber. He estimates the value of the GAC investment at $1 billion, noting that speculators will often buy rumors and sell news.
Thomas Niel has noted that Nio’s debt presently trades at about 47 cents on the dollar. So the debt’s value is dropping while the equity’s is rising. If the company had a rosy future, things should be the other way around.
The company has been beating on delivery estimates recently. It also continues to expand its sales network, with plans to go from 77 outlets to 200 by the end of 2020.
Some of the recent gain probably came from traders covering their short positions, after Nio predicted a 67% delivery gain for the December quarter.
Tom Taulli is also skeptical on Nio’s longer-term picture. It needs a big new investor to get through this year. Could it be GAC?
The Bottom Line on Nio Stock
Traders and speculators have been cleaning up on the Nio action, in both directions. The short squeeze was great for the bulls. The last week has been great for the remaining shorts.
But this is gambling, not investing. If you’re playing with your retirement, or if you have money you can’t afford to lose, stay away from Nio stock.
On the other hand, if you’re under 40 and like to put it all on red, try your luck. I’ll stand over here and watch.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.