Thanks to Russia’s invasion of Ukraine, Nio (NYSE:NIO) opened on Feb. 24, trading at $18.50, its lowest level since September 2020. Thankfully, for owners of NIO stock, it’s rebounded nicely. As I write this, shares of the electric vehicle maker are trading around $22.23, and well off the 52-week low of $18.47.
When I last wrote about Nio, I said it was a slam-dunk buy under $20. Now flirting with its lowest levels in 18 months, management better be buying back its stock. If it doesn’t, I will have to reassess my bullish opinion of NIO stock. Here’s why.
NIO Stock Is Cheap Under $20
As I stated on Feb. 3, Nio’s market capitalization on Jan. 31, 2021, was $82 billion, the same as Ford’s (NYSE:F) a year later. In 13 months, Nio’s market cap lost 64% of its value, while Ford’s gained more than 61%.
Talk about two cars going in different directions. Ford’s printing money while Nio’s trying to get the attention of investors despite the fact it added 93,856 vehicles over 12 months through Jan. 31, an increase of 113%.
What did Ford do over the same period?
In the 12 months ended Dec. 31, 2021, its U.S. sales were down 6.8% to 1.91 million. Its European sales were down 9.9% to 878,648, and in China, it sold approximately 624,000 vehicles in 2021, a 3.7% year-over-year gain.
According to pg. 5 of its 2021 10-K, it sold 4.2 million vehicles last year worldwide, 300,000 less than in 2020 and 1.3 million less than 2019. Over the previous three years, Ford has lost almost 1% market share worldwide. Yet it was the one getting the valuation bump, not Nio.
It makes Little Sense
If you look at the two companies from an EV perspective and one considers the transition to electric a foregone conclusion — as I do despite — there is no question that Nio is giving as good as it gets on this front.
Ford makes a big stink about its push into EVs. In its December 2021 U.S. sales press release, it highlights that, “Ford electrified vehicles grew 36% faster than the segment overall in 2021 while achieving new sales records for the month of December and all of 2021.”
In the U.S., Ford sold 12,284 electrified vehicles, 121% higher than December 2020 and 4x faster than the overall segment in December. Yet its 10-K barely mentions any of this electrification excitement.
Ford sold 27,000 EVs in 2021, while Nio delivered 91,429, 2.4x that amount.
One last thing on the valuation front.
Ford finished 2021 with $103.0 billion in net debt on its balance sheet. Nio ended 2021 with $3.8 billion in net cash. Yet Ford is the one with the pumped-up valuation?
Look, I like the look of many of Ford’s newest vehicles — Mustang E-Mach, Bronco, and Maverick — but I don’t get the difference between the two companies’ valuations.
The Bottom Line
In the first nine months of 2021 through Sep. 30, Nio’s capital expenditures were $371 million. Annualize that, and it’s $494 million. So it’s got plenty of cash in reserve to handle a $1 billion buyback.
At current prices — and assuming a 25% premium for moving the stock higher due to its share repurchases — it could buy back 38.57 million American Depositary Shares (ADSs), or 3.5% of the outstanding ADSs.
It’s not a massive reduction, but it would signal to investors that enough is enough. Its shares are too cheap to mess around.
Further, as Nio rolls out its fourth (ET7) and fifth vehicles, the cash flow generation will continue to accelerate, adding even more net cash to the balance sheet. Ford, in the meantime, will have to deliver near-perfection on the EV front if it ever wants to get a price-to-sales ratio above one.
The announcement alone should help move the share price a few dollars higher. From where I sit, it seems like an intelligent capital allocation lever for management to pull at this point in the proceedings.
I’ll be watching in the coming weeks for an announcement from the company.
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.
