Why NIO Stock Belongs On Your Radar Again

Stocks to buy
  • Nio (NYSE:NIO) stock has started rising again after a likely resolution between China and the U.S. on accounting and auditing issues.
  • Nio has big growth plans and a strong delivery outlook for 2022.
  • Nio stock is trading 57.1% below its 52-week high, presenting an investment opportunity.
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NIO (NYSE:NIO) stock had been spiraling downwards over the past 12-months. Despite impressive growth, the downtrend has sustained as investors feared possible delisting of Chinese stocks on U.S. stock exchanges. Chip shortages have also impacted sentiment on the stock. However, NIO stock has started showing some recent signs of strength.

A report indicates that the China Securities Regulatory Commission is planning to possibly grant the U.S. access to Chinese audit papers. This approach might break the multi-year deadlock on accounting standards between the U.S. and China. Although risk of delisting still remains, the news has given a short-term respite to investors holding Chinese EV maker.

NIO is one of the leading a manufacturer and supplier of premium electric vehicles (EVs) in China. The company differentiates itself from the competitors by providing innovative battery swapping and autonomous driving technologies.

NIO’s technological innovation, such as providing battery as a service and autonomous driving has attracted attention of large institutional investors. Now NIO stock is trading near its 52-week low, which presents a good entry price for astute investors.

Ticker Company  Current Price
NIO Nio $21.22

What’s Happening With NIO stock?

The EV manufacturer reported a positive earnings surprise for the full year of 2021. However, Q4 2021 earnings were negative 17 cents, 3 cents below expectations. Earnings were negatively impacted in the fourth quarter due to higher input costs and supply chain constraints.

Full year revenues came in at $5.7 billion, 122.3% higher than the prior year. An impressive 109.1% increase in total deliveries help lead this growth.

However, the negative impact of a lockdown in China to curb Covid-19 infections and continued semiconductor supply constraint are expected to weigh on its deliveries in Q1 2022. As such, total vehicle deliveries are expected to be sequentially flat in the range of 25,000 to 26,000 units.

Meanwhile, Nio remains on track to launch three new EVs (ET7, ES7, and ET5) planned for the year.

The company is also expanding internationally. NIO entered in Norway during 2021. Given the greater traction of EVs in Europe, the company plans to expand its geographical footprints across EU regions, including Germany, Denmark, Sweden and the Netherlands in 2022.

Nio Is Operationally Strong

Gross vehicle margin too remained strong. For the full year of 2021, gross margin was 20.1%, 740 basis points (bps) higher than the last year. Regardless of a spike in raw material prices and delays in semiconductor chips from the suppliers, the company could deliver higher margins.

Most the EV makers were hard hit during the quarter for the same reasons. Tesla (NASDAQ:TSLA), the company’s closest competitor recorded gross margin as low as 16% despite rising its EV price twice during the year.

NIO does not expect to increase the price of its vehicles during the year, unlike TSLA. Likewise, the company expects to address its semiconductor chip supply issues from its partnership with Nvidia (NASDAQ:NVDA) and Qualcomm (NASDAQ:QCOM) during the year.

Management estimates NIO’s vehicle gross margin between 18% and 20% in 2022. The company aims to break-even in 2024.

Should You Buy NIO Stock?

The Electric Vehicle market is poised to grow at a rapid pace as governments across the world aim to bring down carbon gas emissions caused by internal combustion engine vehicles.

NIO aims to enhance EV adoption by solving the two biggest problems associated with electric cars — higher upfront costs and longer charging times. It aims to do so through its battery-as-a-service innovation. The program allows a user to swap batteries for its vehicle from power stations across China.

The company has been performing well in the domestic markets and has huge plans to expand in both domestic and international markets. As such, it has gained investors’ interest.

The stock is currently trading at price-to-sales ratio of 6.06x. Considering an average five-year analyst revenue growth forecast of 84.81%, the valuation appears to be reasonable. I would consider a Buy recommendation for the stock.

On the date of publication, Sakshi Agarwalla did not have (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.

Sakshi Agarwallahas more than eight years of experience writing equity research reports and preparing financial models for companies across various industries, as well as writing newsletters and financial articles. Recently, she assisted her Fund manager in executing trades, preparing weekly, monthly NAVs and writing newsletters. She has a postgraduate degree in finance and has completed CFA.

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