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As Nio Shares Soar, Stay in the Trade but Don’t Over-Allocate

You’ve got to hand it to the InvestorPlace writers who issued strong-buy signals on Nio (NYSE:NIO) back when it was out of favor among the trading community. That was a year ago, and the Nio stock price has skyrocketed since then.

a sports car made by Nio
Source: Carrie Fereday /

Hopefully, you profited from the long Nio trade. Yet, you don’t have to feel a sense of FOMO (fear of missing out) if you didn’t capitalize on the astounding price move in Nio stock.

Instead, you can just “trade what you see,” as the old saying goes. And what we’re seeing now is a Chinese electric vehicle manufacturer that’s rapidly expanding, along with a market that’s also growing at a fast pace.

On the other hand, value-focused investors might raise concerns over the valuation of Nio stock. That’s an angle worth considering, so let’s delve into the finer points of the stock right now.

A Closer Look at Nio Stock

Suffice it to say that Nio stock is a momentum trader’s paradise. The shares are now worth more than 1,000% of what they were a year ago.

The 52-week range of $2.11 to $66.99 is a real jaw-dropper. Even high-flying biotech and mining stocks don’t typically move that fast. Thus, the technical bull case revolves around the powerful upward momentum in Nio stock.

That won’t appeal to all investors, however. From a value seeker’s point of view, Nio stock might be flying some red flags. The most obvious caution signal is that Nio’s trailing 12-month earnings per share is -$44.10.

With that negative number in mind, it’s plain to see why some people might be wary about Nio stock. The company’s growth has been impressive, but it might already be priced into the stock.

For that reason, it’s probably a good idea to limit one’s position in Nio stock to a moderate size. And if you already have gains in the hundreds of percentage points, it’s perfectly fine to start the profit-taking process.

Analysts Are Chasing

With the Nio stock price moving so quickly, it’s necessary for financial analysts to raise their price targets in response.

Otherwise, their price targets would be outdated and would seem to indicate a downward projection for Nio stock. I’ll give you an example now to illustrate what I’m talking about.

In mid-November, Deutsche Bank analyst Edison Yu raised his target on Nio stock from $34 to $50. Needless to say, Yu also assigned the stock a “buy” rating.

In defense of this huge price-target hike, Yu wrote, “The fourth-quarter deliveries/sales outlook was materially ahead of our/consensus estimates and supply constraints appear to be less of an issue than we had expected.”

But let’s be frank here. With the Nio stock price hurtling toward $50 and $60, Yu didn’t need an excuse to raise his target.

A Data-Driven Outlook

And he did it again recently, lifting his price objective on Nio stock from $50 to $70 per share. But that’s modest compared to Nomura analyst Martin Heung’s recently issued $80.30 price target on the stock.

I could provide more examples of Wall Street’s euphoric outlook, but you get the idea. Rather than get caught up in the analyst community’s price-target escalation, I recommend that investors should focus on the data.

And admittedly, the data looks pretty good for Nio. In 2020 the company delivered 43,728 electric vehicles, which is more than most people would have probably projected a year ago.

Over the long term, Nio aims to double its vehicle output to 300,000 units per year. Moreover, JPMorgan analysts project that in 2025, electric vehicles will comprise 20% of the total China car market.

In other words, Nio is growing fast in a fast-growing market. So it’s conceivable that the Nio stock price, while lofty, could be justifiable.

The Bottom Line

Value-oriented investors won’t like everything about Nio stock, even if they appreciate the company’s impressive growth rate.

Instead of worrying about what analysts think about Nio, it’s best to just look at the data. The share price is high, but even the most finicky value seekers can find reasons to like Nio if they look hard enough.

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 Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) 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,

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