Nio (NYSE:NIO), the Chinese electric vehicle (EV) maker, posted lower growth than expected in the first quarter and reduced its outlook for Q2. As a result, I have lowered my expectations as well. I now believe that Nio stock is worth no more than $38.58. That’s 15.4% above its closing price on May 14.
This is based on my expectation that, just as Nio predicted, it will produce between 21,000 and 22,00o EVs during Q2. This means that its quarter-over-quarter (QoQ) delivery growth will be about 5.2%, down from 15.6% in Q1.
Deliveries and Revenue Growth Estimates
My model uses an assumption that Q2 revenue will be about $1.281 billion, or 5.2% higher than Q1 on a QoQ basis. This coincides with the company’s prediction that revenue will be between $1.243 billion and $1.298 billion in Q2.
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You can see these growth rates in my model in the table above. It also shows that total revenue for 2021 will still be higher than 2020.
You can see that my model shows lower growth in Q2 over Q1. By Q3 there will be negative delivery growth on a QoQ basis. But delivery growth picks up again in Q4.
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Another way to see this is in the picture graph on the right. It shows the quarterly delivery and revenue growth numbers in my model.
Based on this, you can see that the second half of 2021 has a slowdown in growth, but it still has significant growth on an annual year-over-year basis.
So, for example, for the full year 2021, I forecast revenue will reach just over $5 billion in sales.
This is based on the projections that I put together in the monthly table above showing negative growth in Q3 and a rebound in Q4. This is a pretty dire forecast as it expects a downturn. Think of this as a worst-case model.
What Nio Stock Is Worth
Using this model, we can estimate the value for Nio stock. For example, Tesla (NASDAQ:TSLA) has a price-to-sales multiple of 11.51 for 2021 and 8.5 for 2022.
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The table on the right shows how I use these multiples to derive a valuation for Nio stock. For example, using the 11.51 multiple for 2021 results in a $58 billion market value for Nio in 2021. That is equal to $35.48 per share.
For 2022 I use the average of 11.51 and Nio’s ratio of 10.84 multiple this year. That equals a multiple of 11.18 times. Then I took 80% of that number and used 8.94 times expected 2022 sales. The 2022 sales forecast is roughly 40% above 2021. That is significantly slower than the 2021 growth rate of 117%.
The net result for 2022 is a market value of $63.2 billion. This works out to a price for Nio stock at $38.58. This represents a potential gain of 15% from Friday’s close, as I mentioned above.
Other Models
This is a simple model that shows how you can develop your own method of valuing Nio stock. There are clearly other ways of doing this.
For example, you could estimate cash flows or earnings and then put a multiple on that result. I find the price-to-sales model the simple model to use at this time for this fast-growing company.
By the way, you can compare this to my previous models for Nio stock. For example, in my prior article last month, I had a much higher target price at $73.34. But then the company came out with its lower forecasts. I decided to lower my target price assumptions as well.
However, other analysts are not as grim as I am. For example, TipRanks reports that 10 analysts who’ve written a 12-month target for Nio stock have an average price of $60.04. This represents a potential gain of around 80% over today’s price.
So maybe take my somewhat negative outlook on Nio stock (compared to my previous forecasts) with a grain of salt.
On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
