Nio (NYSE:NIO) posted another high-growth quarter in both deliveries and revenue in Q4 2020 in their March 1 earnings release. This has excellent implications for NIO stock going forward. It also makes the stock look very cheap now. In fact, I believe that it is worth at least between 11% and 76% more or 45.68 to $72.04 per share, or 43% higher on average ($58.86).
In Q4, the company posted over $1 billion in revenue for the quarter and $2.36 billion for 2020. This was 106% higher in 2020 than all of 2019. Moreover, its deliveries were up 112% to 43,728 electric vehicles (EV) in 2020.
Estimates for 2021
As a result, I now estimate that deliveries will be at least 97,636 in 2021 or up another 123% year over year. As I expect a slight increase in the average sales price, revenue will be $5.806 billion this year, up 150% year over year.
Click to Enlarge
You can see these estimates, on a quarterly basis, as well as 2020 quarterly deliveries and revenue, in the table I have prepared on the right.
This shows that each quarter there will be higher deliveries, despite the recent downturn in February. The company announced that February 2021 deliveries were 5,578 EVs, down 22.8% from January 2021, which were 7,225. In addition, Nio recently said that production would be down for 5 days in March due to chip shortages.
Nevertheless, I expect there will be at least 18,799 in deliveries during the March quarter, which will be 8.9% higher than even in Q4. My projections for the rest of the year will be for an average increase of 7.5% each month throughout the year. In addition, the average selling price is forecast to grow from $58,673 in Q4 to $59,835 by Q4 2021, an increase of 2% YOY.
This brings my total annual revenue forecast to $5.806 billion for 2021, a gain of 150% YOY.
Revised Valuation
Tesla (NASDAQ:TSLA) trades for 12.67 times this year’s forecast revenue and 10 times 2022 revenue. Based on this ratio, I believe that Nio stock would be worth $73.55 billion in market capitalization. That would make Nio stock worth $45.68 per share or 11% above today’s price.
If we were to assume that the company would double revenue in 2022 to $11.6 billion, and the target price-to-sales ratio would fall to 10 times sales, like Tesla, the market cap would rise to $116 billion, or 57.7% above the $73.55 billion target price. That would give it a target value of $72.04 per share, or 76% above today’s price.
So, over the next year, NIO stock is worth between 17% and 85% above today’s price. This means that, on average, NIO stock is worth $58.86, or more than 40% above the present price.
Analysts have a similar revenue forecast as mine. Seeking Alpha shows that analysts forecast $5.38 billion in revenue for 2021 and $8.50 billion next year.
Moreover, TipRanks.com reports that 10 analysts have an average price target of $63.64, or 55% above today’s price. The high forecast is $81 per share. Similarly, Marketbeat.com says 17 analysts have a consensus price target of $49.94, or 18% above today’s price.
In other words, my price target of $58.86 is not out of the range of other analysts. The bottom line here is that Nio stock looks very undervalued.
What To Do With Nio Stock
Electric vehicles (EVs) are the subject of various countries’ efforts to move toward lower carbon emissions and a greener economy. Chinese authorities have been behind Nio for a long time, including helping the company when it almost went bankrupt a year and a quarter ago. I suspect that the country will continue to support the company going forward with incentives to buy EVs.
However, NIO stock is only listed on Nasdaq and Chinese companies have come under scrutiny here for not allowing U.S. auditors to audit their books. In January three Chinese telecom stocks were delisted from the NYSE. This past week the SEC started to administer a new Trump-era law called the Holding Foreign Companies Accountable Act.
This law will force certain Chinese companies to submit certain documents to establish that they are not owned or controlled by a governmental entity in a foreign jurisdiction. It’s not clear yet whether NIO stock will be subject to this, given the governmental stake in the company.
In addition, the Chinese companies have to name any Communist Party members on their boards. Concerns about these regulations could be hampering NIO stock and its valuation. However, recently NIO seems to be buying back some of the local government’s 24% stake in the company.
Nevertheless, NIO stock is cheap and this could be a good time to take an investment in this fast-growing EV company.
On the date of publication, Mark R. Hake held 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.
