Nio Can Stay in Overdrive for a While Longer

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Chinese electric vehicle manufacturer Nio (NYSE:NIO) wasn’t a market darling during 2020’s first half. You might recall a time when Nio stock was trading at $2 and change as the company struggled to survive. Things have certainly changed since then, haven’t they?

a sports car made by Nio
Source: Carrie Fereday / Shutterstock.com

Indeed they have, as the Nio stock price has taken a moon shot in the second half of 2020. It’s actually gotten to the point where valuation is a legitimate concern. Is it possible that Nio shares aren’t worth their price tag anymore?

I was pounding the table for Nio stock back in June when the share price was much lower than it is today. Today, after a massive run-up in the stock price, investors have a tough decision to make.

What I’ll do is give you both sides of the argument. From a technical standpoint, it’s hard to resist taking profits on Nio stock. On the other hand, positive developments could easily provide enough fuel for a bullish continuation.

A Closer Look at Nio Stock

So, here’s where the rubber meets the road. The 52-week range of a stock says a lot about how far it has come in the past year. In the case of Nio stock, that range is $1.58 to $32.20.

By the end of October, the Nio stock bulls managed to keep the share price above $30.50. Therefore, Nio shares are much closer to the 52-week high than the 52-week low. This indicates strong upward momentum, but valuation concerns might be raised at this point.

It’s also worrisome that Nio’s trailing 12-month earnings per share is -$44.10. In terms of absolute value, that’s greater than the Nio share price. This is undoubtedly a red flag.

With negative earnings per share over the past year, it’s going to require a strong argument to convince the skeptics that there’s room for further growth in Nio stock. But hey, I’m willing to give it a try.

Changes in China

This development doesn’t mention Nio specifically, but it’s not hard to connect the dots. It relates to China’s recently reported road map for new-energy vehicles.

According to China’s plan, all new vehicles sold in the country will be eco-friendly in 2035. In that year, 50% of the new vehicles sold in China will be “new-energy” vehicles, meaning that they will be electric, plug-in hybrid or fuel cell-powered. The other 50% of vehicles sold will be hybrids.

This is terrific news for Nio. Consider that in 2019, only 5% of new car sales in China were new-energy vehicles. China’s road map plans for that figure to increase to 50%.

Nio is already a known brand in China and has been around since 2014. Patient investors who survived the lean months now have a valid reason to expect the Chinese electric vehicle market, and Nio in particular, to grow exponentially.

Reaching a Milestone

In early September, Nio founder and Chief Executive William Bin Li made a notable prediction. He said, “As we continue to improve the production capacity for all NIO products, our monthly capacity will reach 5,000 units in September to support our future deliveries.”

There was a time in early 2020 when it would have been a miracle for Nio to achieve 3,000 vehicles produced per month. Reaching 5,000 units would have been almost unimaginable back then.

Li’s prediction for September was ambitious, but was it achievable? Nio did achieve the milestone of 5,000 monthly vehicles produced, though it happened in October, not September.

But let’s not nitpick here. 5,000 is a significant number for Nio. Morgan Stanley analyst Tim Hsiao likely had this milestone in mind when he wrote, “The pace of Nio’s progress in achieving its strategic and investment ambitions is tracking ahead of our expectations on all fronts.”

The Bottom Line

I must admit, Nio’s progress has exceeded my expectations as well. And again, China’s plan to make the nation’s new vehicles eco-friendly will provide a boost to Nio stock investors.

Is all of this enough to justify a long position in Nio stock after its breathtaking run-up? I’ll let you decide for yourself, but don’t discount the possibility of further upside as Nio could achieve more milestones in the near future.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, 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.


Article printed from InvestorPlace Media, https://investorplace.com/2020/11/even-after-a-bull-run-nio-stock-can-stay-in-overdrive-for-a-while-longer/.

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