Editor’s note: This article was updated on Jan. 21 to correct the date of Nio’s delivery and production report.
Nio Inc (NYSE:NIO) produced a very good delivery and production report on Jan. 1, 2022, for its fourth-quarter results and all of 2021. Moreover, investors hope Nio will produce good financial results soon. They will likely be released in the first week or so of February 2022. As a result, expect Nio stock to rise this year.
The report indicated that for Q4 it delivered 25,034 electric vehicles (EVs), which was higher by 44.3% year-over-year (YOY). This also led to a full-year delivery record of 91,429 EVs in 2021, an astounding increase of 109.1% YOY.
Overall, most EV companies consider their delivery reports more important than their production numbers. This is because, under accounting rules, they cannot fully account for a sale of an EV until it has been officially delivered to (and paid for) by a client.
Additionally, analysts expect the company to be able to progressively deliver higher amounts of EVs. For example, in Q3, Nio delivered 24,439 EVs. This means that its Q4 deliveries were 2.43% higher than the Q3 2021 deliveries.
As a result, as its deliveries ramp up, NIO stock has a good shot of moving significantly higher over the coming years.
How This Leaves Nio Going Forward
Analysts are still very positive about Nio as an EV manufacturer and its other lines of revenue. For example, according to Seeking Alpha’s latest survey of 24 analysts, they expect to see revenue of $9.91 billion for 2022. This is 75% higher than the $5.66 billion in revenue that is expected for 2021.
Moreover, Nio has been enjoying higher gross margins — and analysts expect this trend to continue. For example, in Q3 its gross margin rose to 20.3% from 18.6% in the second quarter.
As a result, analysts’ earnings per share (EPS) estimate for 2022 is just negative 22 cents for 2022, down from an estimate of 91 cents for 2021.
I believe that Nio will eventually get profitable, especially given that the company is experiencing such high revenue growth rates. For example, Seeking Alpha shows that it expects that total revenue will hit $15.48 billion by the end of 2023. That is 58.4% over the 2022 forecast total revenue, but 2.74 times the $5.66 billion total revenue forecast for 2021.
Moreover, by the end of Q4 2023, its quarterly revenue is forecast to be $4.34 billion. That works out to an annual revenue run rate of more than $17 billion, or more than three times the 2021 sales forecast.
Where This Leaves Nio’s Valuation
At the current price of $29.13, Nio stock has a market capitalization of $46.33 billion. This means that at its forecast 2021 revenue of $5.66 billion it trades for a price-to-sales (P/S) of 8.2 times. This also means that given analysts’ forecast of $9.91 billion for 2022 revenue, its P/S metric is 4.68 times. That is a much lower valuation metric.
Moreover, given the 2023 forecast of $15.48 billion, Nio is trading for just under three times sales (2.99 times). And, as I have shown, by Q4 2023 (less than two years from now), its run rate will be more than $17 billion, giving the stock a much lower P/S metric.
So, at least from this standpoint, it looks like Nio’s valuation is not that outlandish, despite being over $46 billion for a company that loses money. I suspect that by the time it reaches over $15 billion in total revenue, the company will be profitable — at least the market thinks so now.
What To Do With Nio Stock
Collectively, Nio stock has been on a rough track. Since peaking at $64.60 on Feb. 10, 2021, it has been on a long drift down since then. This is despite hitting a high of $47.38 in July.
In fact, after closing at $31.68 on Dec. 31, Nio was down 37% in the last six months of 2021. Moreover, for the year, Nio was down $19.52 from $51.20 where it started the year. That is a miserable return of negative 35% for the year.
So, as Nio picks up revenue and turns profitable in the next year or so, I suspect that Nio stock will turn around as well. Thus, investors need to be patient, especially since the stock appears to be cheap.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) 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.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.
