Nio (NYSE:NIO) has come roaring back to life. From the March lows, NIO stock is up more than 440%, as electric vehicle stocks have found a new leg of momentum. The downside to that observation is that the group may be losing steam in the short term.
Tesla (NASDAQ:TSLA) shares beat on earnings and revenue expectations in late-July. However, despite rallying 6% and looking like it was going to challenge its all-time high, shares reversed lower and ended up down 5% for the session. The following day of action wasn’t much better, sending shares down over 4%.
Nikola (NASDAQ:NKLA) rallied as high as $93.99 a share and temporarily valued the company at more than $25 billion — a higher market capitalization than Ford (NYSE:F). However, shares are now down more than 60% from those levels.
NIO stock is also under pressure. At its July high, shares were up 640% from the lows. However, it has now pulled back by about 30%. What should investors make of this price action and how, after such a massive run, could Nio be undervalued?
Trading Nio Stock
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On the daily chart, one can see where NIO stock really caught fire. While shares were doing well in April and May, June is when Nio really took off. July just became outright ludicrous.
Despite the dip, one can argue that bulls are still in control. Shares have retreated from a high near $16 down to the 20-day moving average. If the 20-day and $11 continue to act as support, it keeps a retest of the highs in play should Nio stock clear the prior 2018 highs at $13.80.
A break of support should be noted, too. In that event, take note of the two large gaps Nio stock has in its chart. The first gap-fill is at $9.38, while the second is at $7.91. The latter is much lower from here, but keep in mind that it’s certainly possible this stock sees this level again at some point.
How can that be if it’s undervalued? Just because Nio stock is likely trading at a discount to where it will be several years from now, doesn’t mean it can’t experience heavy volatility.
On the plus side, Nio is on the right track. The company continues to churn out vehicles and hit its delivery marks. Revenue is forecast to triple from 2019 to 2021. In 2021 and 2022, forecasts call for $3.1 billion and $5.1 billion in sales, respectively.
If Nio can deliver on that front, investors will have wished they took this name much more seriously.
More in the present, Nio delivered 10,331 vehicles in Q2. That’s up 190% year-over-year and above the top end of the company’s guidance. While Nio isn’t forecast to be profitable this year or next, right now it’s all about revenue growth and deliveries.
Valuing Nio Going Forward
Electric vehicles (EVs) are the way of the future. We saw how Tesla was greeted with skepticism before proving its detractors wrong. To an extent, the company is still met with doubts.
However, with Ford, Mercedes, General Motors (NYSE:GM) and others plowing billions into EV technologies, it’s clear industry executives see the direction the auto industry is heading in. That’s even if they lag the progress Tesla has made.
Nio has been met with skepticism as well. So too has Nikola. The former is a Chinese automaker with low brand familiarity in the United States, while the latter is “just trying to be the next Tesla.” Well, I hate to break it to the pessimists, but Tesla became the world’s most valuable automaker and eclipsed a $300 billion market cap last week.
As a realist though, these companies have a ways to go before becoming the next Tesla.
For now, bulls have to do their best not to give up large gains when they are present, while also toeing the line and keeping their eyes on the long-term prize. Don’t be surprised by a pullback in NIO stock, but don’t be scared of it either.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.
