Misplaced Fear Is Driving NIO Stock Into an Easier Buy Decision

  • Risk-off headwinds remain a problem for Nio (NYSE:NIO) stock.
  • NIO stock is reasonably priced in a bearish market after recent delisting news.
  • Accumulating Nio shares or a stock collar are sensible strategies.
NIO store sign and customer in electric car store. NIO is a Chinese EV company
Source: Robert Way / Shutterstock.com

Monday picked up where last week left off on Wall Street with the major averages hitting year-to-date lows. And Shanghai-based electric vehicle (EV) play Nio (NYSE:NIO) didn’t prove immune to the bearish behavior as NIO stock fell more than 9% in the session.

This week’s bearish start. Last week’s miserable finish. April’s punishing retreat or simply an awful 2022 for risk assets. Most investors will agreeably point fingers at Covid-19 and Russia as global economies wrestle with rocketing inflation, hawkish monetary policy and supply chain snarls which appear to grow worse daily. And Nio’s year-to-date (YTD) decline of 56% reflects those bad actors and more.

But unless Fred Flintstone’s foot-powered vehicle is set to make a comeback, today’s NIO stock is demanding investors consider buying shares. So, let’s look at what else is happening, off and on the price chart, and how a more calculated purchase in Nio might be approached.

NIO Nio $14.50

NIO Stock Comes Unplugged

Make no mistake, Nio has other specific, but broader market fears that have weighed on shares in 2022, and helped drag the stock down about 80% since last January’s all-time-high of $66.99.

One boogeyman in question is investors’ collective retreat out of higher multiple growth stocks. That phenomenon began last February just after NIO stock peaked, and this year it’s snowballed into an even larger drag with tighter monetary policy now underway.

Secondly and as a China-based American Depository Receipt, Nio shares have been a victim of political and regulatory saber rattling against Chinese companies over the past year. And last week those durable fears against NIO stock did seemingly receive some validation.

NIO stock, along with Xpeng (NYSE:XPEV), JD (NASDAQ:JD) and others, were placed on a list of 88 Chinese companies with delisting risk. And in the wake of the report’s release investors sent shares of NIO down more than 15% in a single session.

The good news is the report wasn’t an indictment against NIO. And according to Deutsche Bank (NYSE:DB), “pronounced weakness from delisting headlines” are a buying opportunity in Nio shares.

Fear to Cheer About in NIO Stock

Unless investors fearfully suspect accounting irregularities will suddenly appear, fail to appreciate NIO stock’s Hong Kong listing as a positive liquidity feature or believe Covid-driven near-term supply chain disruptions are a sign of long-term problems –the case for buying Nio is an increasingly strong one.

Today, the bear market in NIO stock has led to shares trading much closer to a historical trough and presenting relative value versus EV giant Tesla (NASDAQ:TSLA) with shares fetching just over four times sales compared to TSLA stock’s 16 time multiple.

Further and at a market capitalization of $26 billion, NIO is offering investors the chance to buy shares at a fraction of TSLA stock’s $815 billion valuation despite three new competing models hitting the road this year.

To be fair, Nio shares won’t make a dye-in-the-wool value investor smile. And more challenging right now, investors that purchase NIO stock are choosing to buy growth when it’s out-of-favor in a gloomy and doubtful environment.

But demand for Nio’s popular EVs remains huge and longer-term sales growth shouldn’t be dismissed. In fact, if the EV maker’s supply chain can normalize next year, sales could quadruple by 2024 and even achieve sustainable profitability according to The Motley Fool.

Positioning in NIO Stock

Nio (NIO) challenging key monthly hammer support with signs of failure warning of lower NIO stock prices
Click to Enlarge
Source: Charts by TradingView

Fearful market behavior has also led to NIO stock testing its March’s bullish monthly reversal hammer candlestick. After narrowly confirming a bullish buy decision in April as shares traded through $23.86, Nio is about 4% from taking out the bottoming candle’s low of $13.01 and zone support from roughly $13 – $19.

With stochastics flatlining in oversold territory and NIO’s lower Bollinger band beginning to open from a flattened position, a full-blown retreat to Nio’s Covid bear market low might appear credible on the price chart. But rather than panic, now is actually a better time to start accumulating shares or considering an actively-managed collar in NIO stock.

In order for NIO stock to revisit its Covid lows, shares would need to unravel another 85% and compress in valuation to around $4 billion. Realistically though, that’s highly unlikely to happen. And attempting to cherry pick a bottom, as Nio’s volatile monthly candlesticks can attest, comes with its own degree of difficulty.

Given NIO’s revenues last year amounted to $5.671 billion and more than five-fold 2019’s pre-Covid sales of $1.124 billion, even if hamstrung buyers or supply chain problems turn into larger issues, only a consumer movement towards foot-powered transportation at the expense of EVs could push NIO stock towards the low single digits. And bottom-line, that’s only probable in investors imagination or an episode of The Flintstones.

On the date of publication, Chris Tyler does not hold (either directly or indirectly) any securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT and StockTwits.


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