I’ve come full circle on Nio (NYSE:NIO). Prior to the pandemic, I didn’t see much hope for a company that looked headed for bankruptcy. But that was then. Today, Nio is an electric vehicle (EV) maker delivering both cars and innovation. Plus, the company is making inroads to expand into Europe. All told, I believe investors should look at the dip in NIO stock as a buying opportunity.
Before we look at the why behind the recent dip, though, it’s important to remember that NIO is still up 70% in the last 12 months. With an average price target of roughly $64 on Tipranks, a long position in this pick looks more than justified.
Of course, that doesn’t mean there won’t be short-term concerns. But this is one of those times when trusting your instincts is the right call. The headwinds that face Nio are not existential threats. While they may affect short-term performance, the long-term outlook is still favorable for this otherwise sure-fire winner.
NIO Stock: Bad News Comes in Threes
NIO stock is down about 19% since it reported earnings back in August. There are three key reasons for the stock’s decline.
For starters, Nio posted year-over-year (YOY) delivery growth once again in the report. However, it was clear to analysts that growth was beginning to slow. And furthermore, the company announced that the global chip shortage would have a material impact on deliveries for the next several quarters.
That news alone caused NIO stock to drop. Still, the stock was rallying again heading into September — that is, until Sept. 7, when the company announced a $2 billion at-the-market (ATM) share offering. Although Nio had provided investors with a heads up, these events are almost always greeted with a bearish reaction. This time was no different.
Finally, though — whether fairly or unfairly — Nio is being caught up in the current situation with China Evergrande (OTCMKTS:EGRNF). But, just as with the chip shortage and the ATM offering, it appears that investors are starting to shrug off the news. As of this writing, NIO stock is starting to give off bullish signals.
Controlling the Controllable
Out of all of these troubles, maybe most important is the chip shortage. So, let’s take a deeper look.
No doubt, the chip shortage is not an insignificant problem. However, it’s also not a problem that’s unique to Nio. Nor is it a problem of the company’s creation.
Of course, this doesn’t mean you should blindly buy NIO stock without considering the supply issues. There’s going to be a period of price discovery while the situation works itself out. But the global chip shortage will work itself out. And in meantime, Nio has no control of that timeline.
Because of this, what investors need to look for is how well the company is controlling what it can control. So, how’s it doing on that front? Actually quite well.
Trust Your Instincts with NIO Stock
When it comes down to it, Nio is one of the best pure plays in the electric vehicle (EV) sector. Sure, its delivery numbers may be slowing, but that’s due to factors outside of the company’s control. And on the other hand, it continues to grow its innovative battery-as-a-service (BaaS) battery swap program. The system allows the company to keep the base price of its premium EVs lower than the competition while also addressing the range anxiety of prospective EV owners
Still, NIO stock has found it difficult to stay above $50 per share in good times. This is why investors can be bullish on NIO stock while not blindly pushing the buy button.
As such, look for opportunistic entry points with this name. I agree with fellow InvestorPlace contributor Will Ashworth — anything under $40 looks good here. This will give investors a chance to ride out the chip shortage and be positioned to profit when deliveries pick up steam again.
On the date of publication, Chris Markoch 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.
Chris Markoch is a freelance financial copywriter who has been covering the market for over five years. He has been writing for InvestorPlace since 2019.
