Nio (NYSE:NIO) shares are getting clobbered on Wednesday afternoon, down 22%. That’s as the overall markets are under pressure again and after Nio reported earnings. Is this sending Nio stock into bargain territory?
Those that believe in the long-term growth in China and the move toward electric vehicles (EVs) sure think so. While Nio still has its ups and downs, remember, this business is about access to capital. In that regard, Nio has been doing plenty of work.
Ever wonder what got Tesla (NASDAQ:TSLA) stock to bottom in the summer of 2019, before it rallied from sub-$200 to almost $1,000 per share? The company raised capital, alleviating fears that it would run out of money. Nio is about to do what Elon Musk & Co. pulled off, and Nio’s stock price will skyrocket as a result.
Let’s dig in.
Nio’s Got the Cash
To be fair, Nio is not as far along as Tesla. The latter just produced its one-millionth vehicle and has several production facilities around the world. However, Nio has a big opportunity, given that China is the largest EV market in the world and considering consumers’ draw to these new vehicles.
But it needs to stay afloat until it begins turning a profit — assuming that it eventually can. If Nio turns free cash flow positive and profitable, this stock will not be in a sub-$5 name. In fact, Nio stock will not likely be in the single digits.
Until that happens, it needs to reassure investors it has enough cash to keep the lights on.
This year, Nio raised $200 million worth in one convertible debt deal, and another $235 million in convertible debt in a separate deal. That $435 million will buy it time, but the big one is the city of Hefei.
Nio has reportedly signed a framework agreement that will allow it to raise 10 billion yuan (about $1.4 billion) in new funds. It’s also in talks with another city to raise capital. While dilution hurts shareholders, a company has to survive. For Nio, the more money, the better.
Earnings and Covid-19
The long-term opportunity is clear for Nio stock, but there will be some turbulence in the short term.
Fourth-quarter revenue slipped 17% year-over-year to $409.1 million for the quarter ending Dec. 31. It’s a bit concerning to see revenue slipping for Nio, particularly as this was the quarter before the coronavirus outbreak.
While the year-over-year number was not great, Nio did increase revenue more than 54% sequentially. Further, the company almost doubled deliveries for the full year. Full-year losses increased year-over-year, but the losses for the fourth quarter of 2019 decreased versus the fourth quarter of 2018. In other words, there were some positives here.
That said, there are definitely some negatives from the quarter, which is to be expected from a recent EV initial public offering (IPO) out of China. That’s exponentially true considering that Nio has been fighting through a tough backdrop, including a U.S.-China trade war, the coronavirus outbreak and intense stock market volatility.
In regards to the coronavirus, management stated in the quarterly release that Nio began the year in a “challenging environment.” They also argued that, “We are well prepared to proceed through the headwind and become stronger in 2020.”
Due to Covid-19, management expects first-quarter deliveries of 3,400 to 3,600 vehicles. At the midpoint, that’s down about 57.4% from Q4 and 12.3% from Q1 2018.
Bottom Line on Nio Stock
Nio’s management has the Tesla blueprint. It can follow in the footsteps of its older EV brother, and look to replicate some of its successes (and hopefully avoid some of its failures).
There is a lot of short-term noise in the market right now. If Nio stock can make it through this turbulent time, then it should have a robust future. Life is getting back to normal in China, and hopefully as time goes on, we continue in that direction. If that’s the case, production should pick back up and Nio may finally give investors the results they have been seeking.
China is the largest EV market in the world, and provided Nio can keep on churning out vehicles, it should benefit from this boom in activity. Revenue estimates can change over time, but as of now, analysts expect sales to roughly triple by year-end 2021.
There’s mega growth potential in Nio stock — if management can steer the ship through the storm.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.