I consider Nio (NYSE:NIO) to be one of the most successful stories of 2020. In a year plagued by a pandemic and incredible volatility in various markets, Nio stock has really come to life.
In a rare observation, Nio actually bottomed in 2019, not in March 2020. For most stocks, the sell-off from the novel coronavirus sent them to new multi-year lows. Not for Nio, though.
Shares bottomed on Oct. 2, 2019, hitting a low of $1.19 per share. On that day, the stock opened below its previous session’s low of $1.22. In that session – Oct. 1 – Nio stock was in a major slump, closing lower for the eighth straight session by falling 15.4%.
At the low point of that eight-day span, Nio stock was down more than 60%. That’s a massive move in just over one week’s worth of trading! However, on Oct. 2, shares opened lower and quickly reclaimed the Oct. 1 low, rallying more than 20% in a single day.
With a current 52-week high of $57.20, shares climbed 4,707% from the low point 14 months ago. That’s why I consider it the most successful story of the year.
Can It Keep Up the Good Times?
Apologies on the somewhat detailed history up there, but it’s not often we get to give the play-by-play of a 4,700%, 14-month rally. That said, can Nio really deliver a repeat performance?
I love the electric vehicle (EV) space. Not only are they environment friendly, but they are super fun to drive. There’s clearly more momentum in EV sales than in ICE vehicles.
However, I am skeptical that Tesla (NASDAQ:TSLA) and Nio can give us the same type of performance in 2021. How can Tesla go from a $600 billion market capitalization to $1 trillion next year on $28 billion in trailing sales? How can Nio go from $67 billion to $130 billion on trailing sales of $1.78 billion?
On a net income basis, it’s even harder to justify. That’s with Tesla earnings just $556 million over the trailing 12 months and Nio losing about $1 billion.
Toss in the bubble-like action we have in the SPAC space (largely driven by EV companies) and there is reason to be concerned about these stocks moving forward.
Nio Keeps Delivering
While it may be hard to imagine these stocks continuing higher, investors have options.
First, they don’t need to fight the trend until it bends. Meaning that, as long as the stocks continue higher, bulls can remain bullish. Second, once the “big shakeout” comes, it will leave the winners hurt but alive, allowing investors to pick over the scraps and scoop up these names on a nice discount.
In the meantime though, Nio simply continues to deliver.
On Dec. 1, the company released its November sales results. Deliveries of 5,291 vehicles grew more than 109% year over year. Year-to-date deliveries of 36,721 units is up 111.1%. That’s pretty darn impressive considering the Q1 and Q2 impacts from the coronavirus.
That builds off its strong quarterly results as well.
On Nov. 17, Nio delivered a top- and bottom-line earnings beat, as revenue grew 162.5% year over year. Vehicle margins and deliveries climbed from negative 6.8% and 4,799 in Q3 2019, respectively, to 14.5% and 12,206 in Q3 2020, respectively.
For the fourth quarter, Nio’s guidance came in well ahead of analysts’ expectations. Management expects 6.26 billion to 6.44 billion RMB vs. consensus estimates of 5.36 billion RMB.
In short, Nio continues to deliver and until the company wavers, it’s hard to imagine bulls’ confidence in Nio stock wavering. Without a reason to sell, why do so?
So Where Does That Leave Nio Stock?
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Being long a monster winner that’s been on a huge run does put investors in a tough spot. On the one hand, we don’t want to sell our winners short. On the other hand, we don’t want to give up a bulk of our gains either. Remember, stocks tend to take the escalator up and the elevator down.
If we wait for Nio to disappoint, bulls could easily see a painful haircut in the share price before they can react.
Unless bulls are looking a decade down the road, they may consider taking some profits, to at least lock in some gains.
Until then though, Nio still has a good story. The company’s biggest issue a year ago was delivering on its ambitions. Simply put, margins were negative, deliveries were slow and the balance sheet was weak.
Now margins are positive, demand and deliveries are robust and Nio continues to take steps to strengthen its balance sheet. Most recently on Dec. 14, Nio priced 68 million shares at $39, raising up to $2.7 billion.
Currently, shares are giving traders a nice reset to the 10-week moving average. For many, that is a buying opportunity. Over the December high at $52.10 and a retest of the highs are in play.
A close below the 10-week moving average and $38.43 could put the 26-week moving average in play. That would be followed by the $26.50 to $28.50 area for Nio stock. While concerns are starting to creep forward, bulls remain in control.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
