Nio (NYSE:NIO) posted another good month of higher deliveries in January 2021. And although the electric vehicle (EV) firm will release its fourth-quarter earnings on March 1, its January deliveries show that Nio stock is still undervalued.
For example, Nio said that it delivered 7,225 EVs in January, which was 352% above the prior year. Moreover, this represents a 3.1% growth even over December with 7,007 deliveries, the previous highest number at the company.
Estimates for 2021 at Nio
Nonetheless, I still estimate at least 135,224 vehicles will be delivered this year. And that is up 229% over last year. Once the company posts its Q4 numbers on March 1, I can update this forecast. But for right now I estimate that revenue will be $7.569 billion in 2021.
That said, at least I’m getting closer to analysts’ average revenue estimate of $4.9 billion for 2021, according to Seeking Alpha. Meanwhile, my prior revenue forecast was $9.2 billion for 2021.
Not that it matters if I am close to other analysts’ forecasts, but it helps provide some guidance. That said, the upcoming Q4 and 2020 earnings release will be able to help me see what the average price per EV has been. And this will allow me to estimate its revenue and margins more precisely.
For example, analysts expect to see profits of 29 cents per share by 2023 year-end and 39 cents EPS by 2024. By 2027, EPS is at $1.00 — putting the stock on a forward 6-year price-earnings (P/E) of 60 times (i.e., current price is $60.36)
Calculating Nio’s Value
So far this year, Nio stock is up nearly 24% and up almost 1,460% in the past year. At the current market value of $88.86 billion, Nio stock is at nearly 12 times my estimate of $7.569 billion in sales this year.
By contrast, Tesla (NASDAQ:TSLA) trades for almost 24 times revenue for this year and 16 times next year. If Nio were to trade at 24 times my forecast of $7.569 billion of revenue, its market value would be $181.66 billion.
That represents a potential rise of 105.15% above the current market value of $88.55 billion. In other words, the price target is $123.83 per share (i.e., 105.15% higher than the current price of $60.36.)
Sure, my price target is still well above other analysts. For example, the average analyst price target, according to TipRanks.com is $65.28 per share — or 8.15% above the current price. However, Marketbeat.com says that the average of 17 analysts’ target price is $46.48, or over 23% below the current price. However, Yahoo! Finance has an average estimate of $60.26 per share — very close to the current price.
What To Do With Nio Stock
Overall, once Nio announces its earnings on March 1 and provides an updated outlook for all of 2021, I can update my own forecast. For right now though, I am going to stick with my target price of $85.86 per share. This is even though it is much higher than other analysts, many of whom have lower price targets.
One reason that I am so much more cheerful about the future value of Nio stock is a recent report by the China Passenger Association. It reported that in the month of January alone, Chinese retail sales of passenger cars rose 25.7% on a year-over-year (YOY) basis. This brought the total to 2.16 million vehicles, the highest level since 2016.
Moreover, sales of electric cars grew 281.4% YOY to 158,000 in January. This was despite a month-over-month drop of 23.9%, which might be expected from the higher Christmas related sales in December. The point is that sales EVs in China are growing more than 10 times faster than overall passenger sales, at least on a YOY basis.
There is every reason to believe that EVs will continue to grow exponentially in China. Therefore, Nio will gain its share.
That said, look for Nio stock to continue to track higher, especially if earnings and sales come in higher than forecast. Also, pay attention to what management says the outlook for Nio’s growth is during 2021. Right now, however, Nio stock looks at least very undervalued for my price target of $85.86 per share.
On the date of publication, Mark R. Hake holds a long position in Tesla (TSLA) stock.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
