NIO stock will rise above $25 thanks to a long-term catalyst
Investors in Chinese electric vehicle (EV) maker Nio (NYSE:NIO) the stock has not started 2022 well. NIO stock is down 27.9% year-to-date and down about 50% in the last 12 months.
What a difference a year has made for Nio shareholders. At the end of February 2021, the stock was changing hands around $45. Now it’s around $22. Nio has come under pressure due to Chinese regulators’ stranglehold on domestic tech names, as well as U.S.-listed stocks.
During this time, the S&P Kensho Electric Vehicle Index fell 14.5% year-to-date (YTD) and 26.5% over the past year. And You’re here (NASDAQ:TSLA) shares are down 17.6% so far in 2022, but up 33% in the past 52 weeks.
Overall, 2021 has been a banner year for the electric vehicle industry. Despite supply chain headwinds such as chip shortages, global sales of plug-in vehicles climbed 108% year-on-year (YOY) to 6.75 million units in 2021. China is the top performer with more than 3.3 million electric vehicles sold last year.
Given the company’s strong position in China and the bright future of the electric vehicle industry, NIO seems like a good long-term bet. Still, the stock will likely continue to experience significant price swings as the company moves up its valuation. Investors with a long-term horizon might want to buy the dip, especially around $20 or lower.
Nio’s recent quarterly results
Founded in 2014, NIO is still in a phase of strong growth. He recently moved to Norway and is also expanding more operations outside of China. Management wants to differentiate the EV Group through its battery swap, Battery as a Service (BaaS) and Autonomous Driving as a Service (ADaaS) solutions.
Third quarter financial data released in early November showed a 116.6% increase in year-on-year (YOY) revenue of RMB 9.80 billion, or $1.52 billion. However, operating expenses nearly doubled and net losses increased to RMB 2.86 billion, or $443.7 million, up more than 140% from the year-ago quarter. Meanwhile, cash and cash equivalents ended the quarter at RMB 21.6 billion, or $3.35 billion.
According to January 2022 Update, the smart electric vehicle maker delivered 9,652 vehicles in January, up 33.6% year-on-year. As of January 31, total deliveries of the company’s three models, ES8, ES6 and EC6, reached 176,722 units. However, investors weren’t entirely impressed with Nio’s delivery metrics.
On the other hand, Nio bulls are likely to be aware of the previously announced announcement luxury sedan ET7 and the average height ET5 spear. At a marketing event at the Nio House Shanghai MIXC, management recently introduced their new 5-seater midsize SUV, the ES7.
Management expected to release fourth quarter report early March. Therefore, we may see increased volatility in Nio shares in the near future.
Add NIO stocks to portfolios
Among 27 analysts interrogates, NIO stock has a “buy” rating. Furthermore, the consensus of 26 analysts for a 12-month median price target is around $52.28, implying an upside potential of around 137% from current levels. Meanwhile, 12-month price estimates range between $31.08 and $88.02.
Nio’s price-to-sales (P/S) and price-to-book (P/B) ratios stand at 6.16x and 8.63x, respectively. These rating metrics imply that Nio does not currently have a frothy rating.
In comparison, its Chinese rival Xpeng (NYSE:XPEV) is currently changing hands at 15.41x sales and 4.32x book value. Meanwhile, You’re here trades at a P/S ratio of 16.99 and a P/B of 27.73x.
According to the China EV100 think tank, sales of new energy vehicles (NEV) in China is expected to reach 5 million units this year. This growth is mainly due to the Chinese government’s efforts to become carbon neutral by 2060.
Given the industry’s long-term potential, buy-and-hold investors should keep Nio stock on the radar. A drop to $20 could be seen as an opportune entry point. When momentum turns positive, stocks would likely make a quick attempt at $25.
Potential investors might also consider buying an exchange-traded fund (ETF) that holds NIO shares. Examples include the First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN), the Invesco Golden Dragon China ETF (NASDAQ:PGJ), the KraneShares MSCI China Clean Technology ETF (NYSEARC:KGRN), and the VanEck Low Carbon Energy ETF (NYSEARC:SMOG).
The basics of NIO shares
Despite pandemic-related global disruptions and regulatory issues in China, Nio has grown its business. For example, in January, the company rolled out its first over-the-air (FOTA) firmware update outside of China.
the Aspen 3.0.5 NO is exclusively developed for Norway. It brings 199 new features and 401 enhancements to the intelligent operating system based on the NIO 1.0 (NT1.0) technology platform.
Also, in an effort to develop its battery supply, sales and service network, NIO has, so far, built “836 power exchange stations, 3,766 supply chargers and 3,656 destination chargers, and opened 42 NIO houses, 341 NIO spaces, 55 NIO service centers and 180 authorized service centers across China.”
Given its potential growth trajectory and increasing global market penetration, Nio is well positioned for further gains in the coming years. However, NIO stock performance is expected to remain volatile this year.
At the date of publication, Tezcan Gecgil did not hold (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.