A year ago, if I told you that a $10,000 investment in Nio (NYSE:NIO) a year ago would be worth more than $20,000 today, the realistic investor would be thrilled with their bet on NIO stock.
However, knowing how unrealistic some investors can be — I’m talking to you Ocugen (NASDAQ:OCGN) buyers — I’m fairly certain there are people on Reddit and StockTwits complaining about their plight in life vis-a-vis the Chinese electric vehicle (EV) maker.
I will say that given Nio’s inability to stay above $50 for any length of time in 2021, buying at current prices seems like a no-brainer.
Learning From NIO Stock’s Past Performance
Since March 1, Nio’s share price has spent all but five trading days below $50. That’s almost 140 days stuck in neutral or reverse.
Yet, if you look behind the curtain, you will see a business operating almost flawlessly. Clearly, the EV excitement has worn off.
In 2019 and 2020, the KraneShares Electric Vehicles & Future Mobility ETF (NYSEARCA:KARS) — it has an NIO weighting of 4.80% — had one-year total returns of 34.6% and 71.2%, respectively. Year-to-date in 2021 through Sept. 13, it’s up 18.9%, well back of its past performance.
It’s funny how the current markets have altered people’s perceptions about what it means to achieve above-average returns. Double digits (10% or more) used to be the bar you tried to hit. Now, reading all the Reddit comments at r/WallStreetBets, it seems that 10% in a week is the new norm for investor expectations.
Never mind that KARS’ three-year annualized total return of 31.6% means you would have doubled your money over the past three years, 80% better than the return of the entire U.S. markets.
As for Nio, a $10,000 investment three years ago is today worth more than $33,000. That’s more than my rent for an entire year.
Buying Below $50
As you might be aware, Nio will soon be selling its vehicles in Norway as part of its European expansion plans. The European New Car Assessment Program (Euro NCAP) recently gave the EV maker’s ES8 SUV a five-star safety rating. The first of its ES8 vehicles went to Norway in July. Deliveries are expected to begin this month.
While there’s plenty of Chinese competition already there or planning to be there soon, Nio’s got its work cut out for it. However, with an excellent safety rating in hand, it ought to make selling the ES8 in Norway a little bit easier.
On Sept. 1, Nio announced it had 5,880 deliveries in August, 48.3% higher than a year earlier. However, at the midpoint of its guidance for the third quarter — June through September — it expects deliveries of 23,000, down from 24,000 previously.
The company’s three vehicles have contributed to cumulative deliveries of 131,408 through Aug. 31. Compared to the Ford’s (NYSE:F) of the world, it’s a drop in the bucket, but Europe should help accelerate these numbers.
Free cash flow, a metric I like to see in all companies I consider, was positive to the tune of $126.2 million in 2020, a stark change from the two previous years. So despite the supply constraints, I don’t see too many negatives from its Q2 2021 results.
With $7.5 billion in cash and cash equivalents ($4.80 a share) at the end of June, Nio is currently trading at 8.1x cash. That’s considerably less than Tesla (NASDAQ:TSLA) at 46.2x cash [based on trailing 12-month’s cash of $16.2 billion]. But, compared to its Chinese peers, it’s pretty similar.
On Sept. 2, Nio announced it would sell up to $2 billion of its American depositary shares (ADSs) at the market. At current prices, that would add 52 million ADS’s to its share count, an increase of just 3%.
Despite the recent slowdown in its share price appreciation, I don’t think it will have any problems attracting institutional interest.
The Bottom Line
InvestorPlace’s Chris Tyler recently discussed why he believes NIO stock is about to break out of its bearish cycle and move higher. That said, he readily admits that Nio’s faced several challenges in 2021, so it’s not a sure thing to chase back up to $50 and beyond.
More importantly, as Chris stated, investors are absolutely ignoring its impressive growth during a period of significant supply issues. It should trade higher.
In the meantime, if I bought at $38, and this time next year, it’s at $76, I’d be happier than a pig in you know what. Below $40 will continue to be a great entry point for patient long-term investors.
On the date of publication, Will Ashworth 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.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.