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Facing Pressure, Nio Stock Could Decline Further

Chinese electric vehicle darling Nio (NYSE:NIO) staged a stellar performance in the past 12 months, returning more than 1,300%. Put another way, $1,000 invested in NIO stock in late March 2020 would now be more than $14,000.

How to Play NIO Stock Following Another Earnings Disappointment
Source: Carrie Fereday / Shutterstock.com

By comparison, since hitting lows last March, Tesla (NASDAQ:TSLA) has returned about 500%.

In terms of absolute market size, China is now the largest EV market worldwide, Next in line are Germany, the U.S. and France.

Regarding worldwide figures, EV-volumes.com cites, “Global Plug-in Vehicle Sales Reached over 3.2 million in 2020… For the ongoing year, we expect 4.6 million plug-in sales.” Therefore, investors’ interest in EVs and alternative energy stocks is at an all-time high.

Nio shares hit a record high on Jan. 11. However, since then, profit-taking has kicked in, pushing NIO stock to the current level of $36. Given the recent decline in price, investors wonder if now could be a good time to buy Nio, often touted as the “Tesla of China.”

Even after the recent downturn in the stock price, the EV group still has a rich valuation level. As a new earnings season gets under way, the markets are likely to stay choppy. Therefore, if you are not yet a shareholder, you might want to wait for a decline toward the $30 level to buy NIO stock.

Let’s take a look.

How Q4 Metrics Came

Nio released fourth quarter and full year 2020 results on March 1. The company markets cars exclusively in China. During the quarter, Nio delivered 17,353 vehicles. It currently has three models:

  • ES8 (six- and seven-seater SUV) Q4 sales were 4,873.
  • ES6 (five-seater SUV) Q4 sales were 7,574.
  • EC6S (five-seater coupe SUV) Q4 sales were 4,906.

For 2020, the total number of deliveries was 43,728. A year ago it had been 20,565. Vehicle sales came at $946 million, an increase of 130% year-over-year. Revenue was $1 billion, up 133% from the previous year. Adjusted non-GAAP net loss was $203.2 million. Net loss per diluted share was 14 cents, a number wider than expected. Cash and equivalents came at $6.5 billion as of Dec. 31.

CEO William Bin Li cited, “The strong momentum has continued in 2021 as we achieved a historic monthly delivery of 7,225 vehicles in January and a resilient delivery of 5,578 vehicles in February, representing strong 352% and 689% year-over-year growth, respectively.”

As we have been covering on InvestorPlace, automakers are suffering from a global chip shortage. Nio management has warned that during the quarter it would have to cut its monthly production capacity from 10,000 vehicles to 7,500 vehicles. This news has been one of the reasons behind the recent decline in NIO stock.

In addition, investors have been nervous about the rising inflationary pressures, as evidenced by the increase in U.S. Treasury yields. Finally, recent days have seen Chinese stocks come under pressure due to U.S. regulatory concerns. New SEC laws are likely to see some China-based names delist in the U.S. Therefore, a move away from growth names like Nio stock might be in the cards in the markets.

The Bottom Line on NIO Stock

Given the growth of the electric vehicle market in China as well as globally, the bull run in many EV makers might still be in the initial stages. However, NIO stock’s price-book and price-sales ratios stand at 13.8 and 17.5, respectively.

This is a very rich valuation level for a company that sells less than 50,000 vehicles  a year. By comparison, General Motors (NYSE:GM) has P/B and P/S ratios of 1.8 and 0.6.

If you do not want to commit full capital to NIO stock, you might also consider ETFs that hold the EV maker as a holding. Examples include the Global X Autonomous & Electric Vehicles ETF (NASDAQ:DRIV), the KraneShares MSCI China Clean Technology Index ETF (NYSEARCA:KGRN), the SoFi 50 ETF (NYSEARCA:SFYF), or the VanEck Vectors Low Carbon Energy ETF (NYSEARCA:SMOG).

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

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.


Article printed from InvestorPlace Media, https://investorplace.com/2021/03/facing-pressure-nio-stock-could-decline-further/.

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