It’s natural to wish that you had taken a stake in Nio (NYSE:NIO) when Nio stock was trading at $2 and change this year. That’s a phenomenon you could call “hindsight investing,” where a great stock trade is obvious only after the fact.
Nio stock is higher than $2 now, of course, and that raises the question of whether it can go much higher. Should value-focused investors avoid a particular stock just because it recently doubled in value? The thoroughly unsatisfying answer is: it depends on the stock and the circumstances.
Based on the data, there should be plenty of upside left for Nio stock. In fact, it’s entirely possible that the shares could double again from here. After all, this was a $10 stock a year and a half ago. Could it get there again before the year is over?
When Flat Is All You Could Ask for
Between the havoc caused to automotive supply chains in China and the demand destruction in terms of new-vehicle sales, the novel coronavirus is quite possibly the worst thing that could have happened to Nio and its shareholders.
All things considered, though, an argument could be made that the company is taking the Covid-19 mayhem in stride. Or at the very least, the damage control has been adequate.
This is reflected in the price action of Nio stock, which is working its way back up to the 52-week high of about $6. Besides, there’s a glimmer of hope on the horizon for the Chinese automotive market, and hence for Nio.
As Baird analyst David Leiker points out, automotive production in China cratered by 44% during this year’s first quarter. There was a bounce-back in April, however, as nationwide production was flat for that month on a year-over-year basis.
Amid the backdrop of a viral pandemic, flat is pretty darned good. The airlines and the cruise-ship companies would gladly take flat over their current conditions. And China is still the world’s largest electric-car market, so Nio’s got a big, albeit weather-beaten, playground to play in.
A Realistic Rebound
When it comes to the automotive market, investors would be better off keeping their expectations low. If you’re hoping for a tremendous rebound in the current market conditions, you’re only setting yourself up for a major disappointment.
Nio’s first-quarter financial results paint a picture of a company in distress but starting to regain its footing. For instance, the company delivered 3,838 cars during that quarter. That’s not too different from the 3,989 vehicles that Nio delivered during the same quarter of the previous year, long before the coronavirus craziness commenced.
Moreover, the quarterly sales figure topped the analyst community’s expectations. On average, they were projecting $180 million in quarterly sales for Nio. The actual result was roughly $194 million. So, add another one to the win column for Nio.
Plus, we have to bear in mind the timeline of the coronavirus’s spread in China, which peaked earlier than it did in the United States. China’s financial struggles accelerated mainly during that first quarter. Against this backdrop, Nio’s not-too-awful quarter was really quite impressive.
And if we shift our scrutiny to April, which wasn’t included in the first-quarter financial results, the overall picture really starts to brighten. Believe it or not, in April, Nio managed to deliver 3,155 vehicles. To give you some context on that figure, it’s more than twice March’s deliveries.
It’s also an improvement of more than 180% compared to Nio’s deliveries in April of last year. Looking ahead now to the second quarter, Nio expects to deliver around 9,750 cars in that time frame.
Summing up his evident relief, Nio CEO William Bin Li observed, “We have witnessed the order growth to have rebounded to the level prior to the Covid-19 outbreak since late April.”
The Takeaway on Nio Stock
Appreciating how “flat” can be really good isn’t something that every investor’s willing to do.
If you’re willing to take a data-backed leap of faith, however, then a long position in Nio stock could reward your tempered optimism in the long run.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, he did not hold a position in any of the aforementioned securities.
