- Bank of America analyst Ming Hsun Lee upgraded Nio (NYSE:NIO) from “neutral” to “buy”
- The analyst raised his price target to $26 from $25
- Shares of NIO stock are down more than 45% year-to-date (YTD)
NIO stock closed up over 14% today after several investment analysts stated they believe the worst is over for Chinese stocks. The Chinese electric vehicle (EV) company has lost over 45% of its market capitalization since the beginning of 2022. There are several reasons for the losses, including rising interest rates, tensions between the U.S. and China and supply-chain challenges.
However, Bank of America analyst Ming Hsun Lee now believes Nio trades at an attractive valuation given the “improving outlook.” Lee notes that the company trades at a 1.7 times one-year forward enterprise value (EV) to sales ratio, which is one standard deviation below its historical average. At the end of 2020, Nio was trading at more than 13 times estimated 2021 sales. Per Barron’s, the EV company has experienced a fair amount of “multiple contraction.”
Lee also points out that the company has received ample orders due to extended sale times. Shipments for the ET7 began in March and the ES7 model is expected to launch in June, with deliveries starting in August. Meanwhile, deliveries for the ET5 model are scheduled to start in September.
Lee isn’t the only analyst expecting Chinese stocks to recover, either.
Other Analysts Chime In on Chinese Stocks
China Renaissance CEO Fan Bao believes that Chinese stocks should recover soon. China Renaissance is one of China’s top investment banks. In regards to Chinese stocks, Bao said, “I do believe the market is close to forming the bottom now […] I must say, [overall investor] sentiment is pretty bad.”
Bao acknowledges that China is facing an economic crisis. Still, he believes sentiment has gotten “too negative,” which in turn has created a “great investment opportunity.”
Back in March, JPMorgan characterized Chinese stocks as “uninvestable” for the next six to 12 months. However, just a few months later, the bank seems to be changing its mind. Analysts at the firm have upgraded several Chinese tech stocks from “underweight” to “overweight.” These include Tencent (OTCMKTS:TCEHY) and Pinduoduo (NASDAQ:PDD). Analysts explained:
“We think key risks to the sector have diminished, particularly in terms of regulatory risk, ADR delisting risk, and geopolitical risk.”
For now, Chinese stocks remain heavily beaten down. If these analysts are correct, though, there could be massive gains for these stocks in the near future.
On the date of publication, Eddie Pan 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.