Nio (NYSE:NIO) stock has stumbled since early February. There have been concerns regarding valuation, a shift away from growth stocks, electric vehicle stocks among them, and Chinese EV stocks in particular. Pundits could also point to other bearish signals including semiconductor shortages. NIO stock fell from a 2021 high of $63.10 a share on Feb. 9 to $34.90 a month later.
Yet Nio has weathered the storm well. Share prices have risen steadily since mid-May, appreciating over 65% in that time span. That might lead investors to logically conclude that a cooling period should ensue.
However, the current bevy of catalysts should ensure that Nio stock continues to rise.
NIO Stock Bullishness Rising
Things already look pretty positive for Nio in regards to how Wall Street views it. Of the 19 analysts currently covering it, 15 rate it as buy-worthy. Three analysts are more hesitant rating it a hold, and there’s only a single sell rating.
One of those bullish analysts, Citigroup’s (NYSE:C) Jeff Chung, upped his price target onNio quite significantly. He believes Nio should rise to $72 per share, well above the $58.30 he pegged it at previously. Either of those figures is a significant increase from Nio’s July 8 closing price of $45.60
Nio is a growth company so that is how the Shanghai-based company will be judged. Investors are much more concerned now with sales and deliveries than they are with perfect operational efficiency. There’s a land grab underway in the Chinese EV world, and Nio is proving to be a worthy competitor.
June Sales Whales
On July 1, the company released a delivery update which did not disappoint. Nio delivered 8,083 vehicles in June, that’s a 116.1% increase from the same period last year. The company delivered 21,896 vehicles in the three months which ended June 30, up 111.9%. That brings its production lifetime total to 117,587 vehicles which have been delivered by Nio.
The company has been posting similar triple-digit growth results even as its share prices tumbled through March and April. That indicates that overall sentiment regarding EVs is likely turning a corner and that further increases are likely.
The sector is clearly growing as evidenced by the fact that XPeng (NYSE:XPEV) saw deliveries grow after some tenuous months earlier in the year.
While Nio must remain wary of its Chinese competitors, the overall thrust of the news is positive: Chinese EVs continue to experience fast growth. For more evidence that Nio is indeed on the right track we only need to look back at its Q1 earnings.
Earnings Showed Strength
When Nio last released earnings figures, on April 29, the markets were still very hesitant about EVs generally. Nio’s share price sat at $39 then. That’s why, even though Nio’s Q1 results were strong, share prices would continue to trend downward.
Since mid-May EV sentiment is trending in the other direction. A look back at earnings shows that fundamentally Nio remained strong throughout the market dip.
In the first quarter Nio delivered 20,060 vehicles and recorded $1.13 billion in revenues. That represented a 489.9% increase in revenues from a year earlier.
The company is posting increasing margins on those rising vehicle sale as well. A year ago Nio was losing 7.4% on each vehicle it sold. That figure was a positive 17.2% by Q4 2020 and 21.2% in Q1 ‘21.
Investors shouldn’t expect such explosive growth moving forward. The company sold 21,896 vehicles in Q2, only a marginal increase over Q1’s 20,060 vehicles sold. But it’s clear that the company is rapidly improving operations and there’s little reason to doubt it won’t continue with that.
China sold 10.88 million vehicles between January and May, up 36% from the same period a year earlier, according to Reuters. A global chip shortage and surging raw material prices are having an increasing impact on automakers in the country, data from the China Association of Automobile Manufacturers (CAAM) showed.
As the tide shifts and EVs come back into fashion, Nio makes every bit of sense. It has weathered a downturn that brought Chinese EV stocks down for a period of several months. But the company is doing what needs to be done and in a few years it’ll be worth much more.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.
