Nio (NYSE:NIO) shares have held up simply fantastic amid a broad market sell-off in September. Nio’s share price is now up over 640% prior to now six months. Even in case you’re a long-term Nio bull, now’s nearly as good a time as any to start out taking some cash off the desk.
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Nio has at all times been a high-risk, high-reward stock. And there’s no query the danger related to the stock is way decrease than it was six months in the past. However the stock’s near-term upside is probably going additionally restricted now that its market cap has skyrocketed from round $Three billion to $26 billion in a matter of months.
An electrical automobile market bubble has raised expectations for Nio into the stratosphere. With the stock buying and selling at practically $18, Nio may want a number of extra years for its enterprise to catch as much as its valuation.
NIO Stock Headlines
There’s no query Nio’s development metrics have been spectacular. The corporate reported a 104.1% enhance in automobile deliveries within the month of August. However as at all times with Nio, it’s necessary to maintain these numbers in perspective. That 104% development nonetheless solely represents a minuscule 3,965 autos. Even after a 33% decline as a result of pandemic, Ford (NYSE:F) reported 433,869 deliveries within the second quarter. In different phrases, Nio delivered lower than 1% the full variety of vehicles Ford did. But Nio’s market cap is roughly in-line with Ford’s.
Bank of America analyst Ming Hsun Lee is a big Nio bull. Lee has a “buy” ranking and $23 price goal for Nio.
“Unfettered access to low cost capital is one of the major edges for NIO; thus it has sufficient capital to invest in tailor-made autonomous driving solutions and charging related infrastructure,” Lee says.
But even Lee is forecasting simply 101,000 automobile deliveries for Nio in 2022. Two years from now, Nio will nonetheless be delivering lower than 25% the variety of autos in a yr that Ford delivered in a single quarter. In the midst of a pandemic.
15-Yr Outlook
I perceive the excellence between Nio and Ford, so Nio buyers don’t must ship me indignant emails. Nio is a development stock. Not a type of curious development firms like Tesla (NASDAQ:TSLA) that isn’t really rising. Nio is a high-growth firm within the largest rising market economic system on the planet. I’m bullish on the corporate’s basic outlook. However as I wrote about Tesla just lately, Nio buyers’ largest downside may not be that the stock sells off.
From 2000 to 2015, Microsoft (NASDAQ:MSFT) greater than quadrupled its income. However as a result of the dot com bubble had inflated Microsoft’s stock price a lot in 2000, Microsoft shares really dropped 20% over that 15-year interval.
There’s a case to be made that Nio’s share price has gotten much more inflated than Tesla’s from the 2020 EV bubble. Tesla’s ahead earnings a number of is a bloated 142, however not less than it has one. Nio isn’t even near worthwhile. Tesla’s price-to-sales ratio is an absurdly excessive 15.6. Nio’s is 17.6.
Even Lee is forecasting an earnings per share lack of $1.86 in 2022. Tesla is 17 years in and nonetheless not worthwhile with out promoting regulatory credit. Nio buyers hoping the corporate is the following Tesla higher hope it does a greater job than Tesla in reaching profitability. If not, Nio may nonetheless be hemorrhaging cash by the point 2030 rolls round.
Tips on how to Play It
When stocks like Nio get caught in market bubbles, they commerce rather a lot like penny stocks. Share price is now not connected to the corporate’s enterprise. It’s connected to the story merchants are obsessive about. In the mean time, that story is that auto firms like Ford are dying dinosaurs and Nio is the long run. I admit that may be a nice story. However the firm itself continues to be on the primary web page of that story, whereas its valuation is already a number of chapters deep.
Any time a stock is up over 600% in six months, longs ought to on the very least be taking some earnings. Nio will not be worthwhile, it’s years behind Tesla and it nonetheless wants to boost billions and billions of {dollars} to fund its development. In the meantime, opponents are anticipated to launch 20 new EV models by the top of 2021, in accordance with Loup Ventures.
There’s nothing improper with staying lengthy Nio even after its massive run. However buyers want to grasp the stock continues to be a high-risk speculative gamble. I feel Nio has the very best publicity to 2 long-term development traits I like: China and electrical autos. However the stock seemed like a significantly better gamble at $Three than it does at $18.
On the date of publication, Wayne Duggan didn’t have (both instantly or not directly) any positions in any of the securities talked about on this article.
Wayne Duggan has been a U.S. Information & World Report Investing contributor since 2016 and is a workers author at Fintech Zoom, the place he has written greater than 7,000 articles. Mr. Duggan is the creator of the e book “Beating Wall Street With Common Sense,” which focuses on investing psychology and sensible methods to outperform the stock market.
