It’s not emotionally easy to stock up on a company’s shares during a price pullback. However, the bull thesis for Nio (NYSE:NIO) stock remains stronger than ever, even at lower price points. In fact, the price dip makes the shares even more attractive.
It could even be argued that Nio is faring well despite the coronavirus from China. Yes, there are challenges for all industries, including the automotive market. And sales numbers have been dented recently. Still, there are reasons to continue to believe in Nio and even possibly buy some shares now.
Impact on Deliveries
There’s no point in trying to deny the coronavirus’ fiscal impact on Nio. February sales data came in, and the results indicated a slump in deliveries for the month. Specifically, there were 707 vehicles delivered, the vast majority of them being the ES6 model five-seat sport-utility vehicles.
Nio Chief Executive William Bin Li owned up to the sales decline, citing the virus as a factor:
“Deliveries have been constrained as services are being cautiously reopened and people are encouraged to avoid unnecessary close-range contact … In addition, the production has started ramping up gradually from the middle of February and supply chains have remained challenging.”
“Gradually” is the key word here. Production isn’t grinding to a halt. It’s expected to pick up, but it will take time and investors should exercise patience.
The company has expressed the expectation that Nio’s vehicle production will return to normal. Plus, Nio is testing out online-sales initiatives. That’s a smart move as more consumers are shopping cautiously because of the coronavirus.
Clearly, the production slowdown has been a factor in the recent decline in Nio stock. The shares fell from over $5 to the $3 level in a relatively short time. Yet, the stock has pierced above $5 multiple times already and could potentially reclaim that level again.
Weathering the Storm
Patience should reward Nio shareholders as long as they have a realistic time horizon. Pressure on the automotive market could continue for a while. Nio CFO Steven Feng accentuates the potential for an eventual turnaround, saying, “We expect that it will take time for the industry and NIO to resume normal productions. We will keep monitoring and coordinating supply chain resources and accelerate productions to fulfill the growing demand.”
Perhaps the CFO is asking investors to have faith that Nio’s sales numbers will improve in the near future. But don’t expect an immediate, dramatic reversal of fortune to happen. The best policy is to own the shares only if you truly believe that Nio will weather the economic storm caused by the coronavirus.
Therefore, it’s not recommended to view the upcoming earnings announcement as the next major price catalyst. On the morning of March 18, Nio is scheduled to report its fourth-quarter earnings results. The company will also report its financial results for the full year of 2019.
Naturally, the released figures will not factor in the impact of the coronavirus. Investors do not need to use this upcoming earnings announcement as a reason to buy or sell Nio stock. Instead, they need to focus on whether they believe Nio can adapt to changing consumer habits and preferences during these challenging times.
The Takeaway on Nio Stock
Nio stock is considerably lower than it was in late January. That doesn’t mean there’s something fundamentally wrong with the company. Nio’s management is well aware of the coronavirus’ negative impact. If the company weathers the storm, Nio shares might make a big move.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, hel did not hold a position in any of the aforementioned securities.