Nio (NYSE:NIO) has had an epic year. In 2020, the stock is up over 1,000%, crushing the S&P 500. Tesla (NASDAQ:TSLA) has jumped 670% this year. Granted, Nio just pulled back from a November high of $57.20 and is now trading just short of $45, but don’t write it off just yet.
In fact, use the pullback as a buying opportunity. With Nio’s solid monthly growth and earnings and growing demand for electric vehicles, I believe Nio stock could be one of the top EV winners going forward. I also expect the shares to rise further once the company’s December delivery numbers are released in early January.
The Pullback Is Only Temporary
After exploding higher, the company announced it would sell another 60 million shares of its U.S. stock. The cash raised from these shares could help Nio grow even more as Chinese electric-vehicle sales accelerate. Plus, the Chinese government apparently wants more EVs on the road.
Granted, the stock sale will be dilutive for existing shareholders. However, after Nio sold 75 million of its U.S. shares in August, the stock ran from $13.20 to $57.20. And EV sales aren’t likely to slow going forward, in light of the heavy demand for them.
In addition, Nio has plenty of other growth catalysts.
Nio’s Delivery Numbers Are Still Accelerating
Since October, the company’s deliveries have remained above 5,000, doubling year-over-year in November for the eighth consecutive month. In October, Nio’s deliveries rose just over 100% YOY. Over the last 11 months, the company’s deliveries have surged 111% YOY to 36,721 vehicles.
Now, ahead of the company’s release of its December delivery numbers in early January, I expect the stock to climb again. As I noted on Dec. 10, Nio stock usually moves higher after the company releases its delivery data. That phenomenon occurred earlier this month and in each of the three previous months.
The EV Boom Is Still Gaining Momentum
Electric-vehicle sales may only increase going forward, as China, Europe, and the U.S. push for a greener future. California Gov. Gavin Newsom just signed an executive order that will ban the sale of gas-powered passenger cars in the state starting in 2035, for example.
In addition, Cairn Energy Research Advisors’ analysts believe that we could see a surge in global EV sales in 2021 as countries around the world promote them. The firm says that the global sales of EVs could jump another 36% in 2021, topping 3 million for the first time ever.
Nio’s Earnings Growth Remains Solid
In its most recent reported quarter, the company’s loss, excluding some items, came in at 12 cents, which was better than analysts’ average estimate of 18 cents. And its revenue of $666.6 million beat the mean outlook of $663.29 million. Its gross margin improved to 12.9%, compared to the average estimate of 11.25%.
“With another quarter of record high deliveries in the third quarter of 2020, plus further improvements in average selling price, material cost and manufacturing efficiency, our vehicle margin increased to 14.5%. Additionally, we achieved positive cash flow from operating activities for the second sequential quarter,” added Steven Wei Feng, NIO’s CFO.
The company’s growth shows no signs of slowing anytime soon.
The Bottom Line on Nio Stock
I’d use the shares’ decline as a buying opportunity. Pullbacks in the wake of stock sales are usually temporary.
Another InvestorPlace columnist, Luke Lango, thinks the shares can reach $150 over the next decade. “That’s a very reasonable assumption. And under that very reasonable assumption, I see NIO stock driving to $150 over the next decade,” he wrote.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.
