Nio (NYSE:NIO) looks to be too cheap now. NIO stock has fallen so far, its inherent value is likely higher than the price where it trades now.
For example, NIO is down more than 53% from its peak price of $43.20 on Nov. 8 since it fell to $20.17 as of March 9. One would think the Chinese electric vehicle (EV) maker is going out of business.
But it isn’t. In fact, Nio will produce its full-year earnings on March 24. We should know then how much money the company made for the past 12 months. Analysts expect that it made $1.55 billion in revenue but lost 16 cents per share. That is based on a survey by Seeking Alpha of 19 analysts covering the stock.
Where Things Stand With Nio
On Feb. 1, Nio reported that it delivered 9,652 EVs in January 2022. This was 33.6% higher than last year. This was also after it delivered 10,489 EVs in December 2021, up 49.7% year-over-year (YOY).
Therefore, deliveries clearly fell from Dec. 2021 to Jan. 2022. This might be due to the chip shortage or some other issues with production. We won’t know if this is a trend until the first week of April, when Nio announces its March deliveries.
One thing we know for sure: Nio delivered 25,034 vehicles in the three months ended December 2021. This is 43.4% more than it did in the prior year’s fourth quarter. That is the basis for analysts’ projections for Q4 2021 revenue.
The only problem is we don’t know how much money the company is going to make (or in this case, lose) on that revenue. All we have are analysts’ estimates so far. Therefore, it seems better to focus on revenue rather than earnings.
Valuing Nio
At today’s market value of $29.91 billion, Nio stock trades for just 3 times analysts’ 2022 revenue forecast of $10 billion. This is by far the cheapest price-to-sales (P/S) multiple Nio has had, according to stats at Morningstar.
By comparison, Tesla (NASDAQ:TSLA) trades for 10.5 times this years’ sales forecasts, according to Seeking Alpha. Tesla is much further along than Nio and rightly deserves a higher P/S multiple than Nio. It seems a valuation of 5 times sales for NIO stock could be a more appropriate valuation.
That would put Nio’s value at $50 billion for 2022 (i.e., $10 billion times 5x P/S.) This is still 67.2% higher than its $29.9 billion market value as of March 9. That implies NIO stock could be worth as much as $33.72 based on yesterday’s price.
What to Do With NIO Stock
Analysts are still very positive on NIO stock. For example, 25 analysts surveyed by Seeking Alpha think it’s worth $52.92 on average. That gives it a potential upside of 162% from today’s price of $20.17.
The same is true with TipRanks. The average price target for 13 Wall Street analysts who have written on the stock in the last three months, according to TipRanks, is $52.59. That represents an upside of 160.7%.
These analysts are much more positive on the stock than my forecast of $33.72 per share. They all think NIO stock is way too undervalued and believe it will rebound.
Recently, Nio announced that it will list its stock on the Hong Kong Stock Exchange. The stock started trading today under the symbol 9866.
This provides investors an alternative in case shares are ever delisted in the U.S. The latter could be one reason why the stock is cheap in the first place. Maybe this way, NIO stock can gain the higher valuation that it deserves.
On the date of publication, Mark Hake did not hold (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.
