While America gawks at a sloppy joe food fight disguised as an election cycle, a controversial warp-speed Supreme Court confirmation and a pandemic that even Clorox can’t kill, other things are happening in the world. Really. No lie. That includes the investment world, where Nio (NYSE:NIO) is lighting up the Chinese electric vehicle market, and NIO stock is making Wall Street a playground for happy campers.
When last I checked on Nio, I confessed fondness for it despite the fact that Nio hasn’t posted a profit and you can’t buy one of its nifty-keen cars in the U.S. (though that may change; more on that in a bit). The company also survived a host of near calamities in 2019 — from a voluntary recall of 5,000 ES8 SUVs after battery fires to laying off 141 workers at its American office in San Jose. No wonder shares fell 40% that year.
But 2019 isn’t 2020 and year-to-date, shares have skyrocketed more than 665%, trading currently at $28.48 per share. Even more impressive: NIO stock continued to climb even as the novel coronavirus pandemic walloped an overwhelming number of sectors and publicly traded companies. With the last quarter of 2020 under way, NIO certainly has a lot to look forward to –so let’s see, pun intended, if it’s a bright horizon or a blighted mirage.
The NIO Stock Road Test
A good place to start is with analyst ratings, since companies of Nio’s ilk are either “pre-revenue” or pre-excuse making. Frankly, this is where $28.48 looks like chump change for Cheetos at the gas-and-go convenience store.
Oh, that’s right. Electric vehicles don’t use gas — not that NIO stock needs it by a long shot. Over the last three months, the number of analysts calling Nio a buy has tripled from three to nine; what was formerly a hold is now overweight.
Yet here’s where Nio could earn its nickname “the Tesla of China” in a different kind of way. The company reports its third quarter earnings on Nov. 10 — and much as Tesla (NASDAQ:TSLA) defied gravity with stock prices that rose in the absence of profits, many are looking for Nio to do the same. NIO stock is forecast to have negative earnings per share $1.23. That’s more than ten times the second quarter loss of 17 cents per share.
Favorable Future Factors
Yet the Shanghai-based company’s prospects will play out in a nation where political leaders very much want it to succeed as a point of national pride. And the same factors that might cripple a U.S.-based EV maker, including supply chain interruptions from the ongoing trade war, simply don’t apply here.
Another potential impact we can’t ignore — though more speculative and tangential — revolves around what a Joe Biden presidency would mean to Chinese companies. Biden is thus far up in the polls, and a victory would most certainly set the stage for a thawing of the trade kerfuffle. That would be great news for any Chinese company hoping to do business in the U.S. Nio is not that manufacturer at the present; it has plenty of work ahead tightening its grip on the Chinese market.
But continued success half a world away would definitely set the stage for market entry here. Nio has hinted as much, too. Autoblog reports that Nio “still hopes to become a truly global brand with a presence in key markets like the United States and Europe, but there’s no fixed date for its entry.” Long-term investors looking at NIO stock shouldn’t ignore this long-term consideration.
Why NIO Remains Electrified
Rare as a dodo sighting is the day, I recommend a company that could sink further on its quarterly earnings, if analyst projections hold up. I should also note here that Niomania isn’t exactly a universal phenomenon. Zacks, for example, ranks NIO stock as a hold.
But lest you think this writer has abandoned his principles for a quick buck and audience adoration, I’m going to weigh in on the side of buying NIO stock. Other numbers look encouraging such as vehicle sales, up 178% quarter-over-quarter.
We may also see one of those curious, counterintuitive phenomena where growing losses could mean a share price spike. It all depends on a Wall Street beat, which you can’t rule out. Especially if NIO takes a small beating after the less-than-stellar third quarter report, this stock is worth a go.
With shares propped up thus far largely on a mountain of foamy-thick FOMO, I’d look forward to drop in price as it would drive out some investor lemmings who cloud a true picture of this company.
Either way, all signs point forward even if profits don’t. I regard NIO stock as a buy-and-hold baby that could yield some tasty price spikes and profit taking along the way. If so, I’m hoping I can splurge at some point on one of those racy EV SUVs. Va-va-vroooom.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.