Time To Buy NIO
Chart 1.1
Chart 1.2
As Chart 1.1 and 1.2 explained how I predict markets will goes for next couple weeks, I think it is pretty safe to recommend some safe buys.
NIO is one of the top EV producers in China, and EVs are critical to China's future. Also, China is by far the most significant car market in the world and plans for EVs to account for 40% of all vehicle sales by 2030. When NIO ramped up production in 2020, the company ran into severe headwinds due to COVID-related effects. NIO was in financial trouble, and the Chinese government stepped in, acquiring a 17% stake in the company, providing the necessary liquidity required to continue operations.
NIO's popular ET7 sedan and ES7 large SUV are among the country's top-selling EVs and should continue experiencing robust demand. The ET7 has a range of approximately 290-555 km, goes from zero to 100 km in 3.8 seconds, and has a top speed of around 200 km/h. The car also has a five-star safety rating and is rolling out in Europe (Germany and the Netherlands). Moreover, NIO recently launched its new ET5 smaller and cheaper sedan in China, and sales of the popular vehicle should take off globally.
NIO is a high-growth company that prioritizes expanding car production and other operations. The company is also involved in the penetration of the European EV market. Therefore, we should not expect NIO to be profitable now, and it may not report positive EPS for several years. Nevertheless, NIO's remarkable growth story implies that the company has significant profitability potential, and just like any other high-growth company, we can evaluate NIO's valuation based on its sales.
NIO's revenues are projected to skyrocket by about 90% to roughly $14 billion next year. Then, we should see revenue growth moderate to about 30-45% in 2024 and lower double digits after that. However, consensus analysts' revenue growth of approximately 13-14% in 2025 and 2026 may be lowballed, and we expect the company will do better. With a market cap of around $18 billion, NIO's forward P/S multiple is roughly approximately 1.24 here, remarkably low for a company in NIO's position.
Wall Street's average one-year price target is around $20.30, roughly 93% above NIO's current stock price. Moreover, higher-end price targets go up to nearly $35, illustrating a price target almost 250% above current levels. Even the lowest price target of $12.34 is roughly 20% above NIO's deeply depressed levels.
Despite these bullish outlook, there are various risks to my thesis. Delisting fears and other detrimental factors related to China could continue to pressure NIO's stock price. Also, the company could run into various production issues and may not reach the production capacity I envision in time. Moreover, NIO's vehicles may experience a drop-off in demand, in which case the company's share price would suffer.
However, I still think it is time to buy NYSE:NIO
