Nio (NYSE:NIO) stock has been decelerating lately. Since early February, the shares have plunged from $60 to $38 — putting the market capitalization at $59 billion. Of course, NIO stock is still well above its low for the past 52 weeks, which was a mere $2 per share.
The fact is that this Chinese electric car operator has been able to pull off a stellar turnaround. Another catalyst has been the rebound in the economy.
Yet the EV (Electric Vehicle) sector is going through a re-assessment from Wall Street. Of course, there has been tremendous selling pressure on other companies like Tesla (NASDAQ:TSLA), Xpeng(NYSE:XPEV) and Li Auto (NASDAQ:LI).
OK then, what’s next? Could this be a buying opportunity? Or should investors hold off on NIO stock for now?
Here’s a look:
The Fundamentals and NIO Stock
Nio certainly had a robust fourth quarter. Revenues soared by 148% to $1.02 billion and the net loss was 14 cents a share, compared to a loss of 39 cents a share in the same period a year ago. The gross margin swung from -8.9% to 17.2%.
In terms of the balance sheet, it got stronger as well. The cash balance went from $3.3 billion to $6.5 billion on a sequential basis. The company was smart to raise some capital when NIO stock was surging.
But of course, expectations were extremely positive going into the earnings report. Thus, it really should not be any surprise that there was disappointment on Wall Street.
The Issues
Now there was something in the report that was a red flag – that is, the deliveries for January came in over 7,200. This was below the 7,400 needed to hit its quarterly objectives.
One reason for this could be the Lunar New Year holiday, in which a large part of the China essentially shuts down. But there may be another factor at work: the global shortage of semiconductors.
“The chip shortage which has impacted the overall global auto industry, as well as Tesla’s recent price cuts, have dented some positive market dynamics for NIO …although we believe this will be short-lived,” said Wedbush analyst Dan Ives.
But how long? It’s far from clear. But there are indications it could last throughout the year. And since Nio relies on third-party manufacturing, this could put the company at more risk.
Despite all this, Ives is still bullish on Nio stock as are a myriad of other Wall Street analysts. According to Tipranks.com, the average price target is $68, which assumes 79% upside from current levels.
Bottom Line on Nio Stock
The past year has definitely been an inflection point for Nio. The company was able to deal with its quality problems and ramp production.
Nio was also able to introduce some innovations. For example, in early January the company launched its ET7 vehicle, which is a sedan. It has a sleek design, strong performance and full-stack autonomous driving systems. And yes, the reception has been particularly strong.
The company has also been innovative with its business model. To this end, it sells its batteries on a subscription basis, which should provide a nice recurring revenue stream. The same will go for its AI systems.
However, in terms of NIO stock, I actually still think there should be caution. Even with the drop-off, the valuation is far from cheap. Consider that Nio stock is trading at roughly 20 times revenues. This is steep for a capital-intensive company.
For the most part, it seems a better approach is to be patient on this one, such as until there is more stability in the stock price.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.
