NIO (NYSE:NIO) shares have been on a downward track over the past 12 months. The stock was down around 80% until Friday when the Chinese EV manufacturer jumped 9%. While its track record for the past year broadly reflects that of many tech and growth stocks, NIO has been one of the worst performing shares around.
However, I’ve recently bought NIO stock. While there may be some short-term pain, I think it’s well positioned to deliver sector-leading growth. So, here’s why I bought NIO shares.
Attractive valuation
NIO is yet to turn a profit. In fact, the company doesn’t expect to become profitable until 2024 and I anticipate the current lockdowns in China may negatively impact this forecast. However, following its share price collapse, NIO’s price-to-sales (P/S) ratio has fallen to around 4. The metric for valuation is calculated by dividing the company’s market capitalisation by revenue in the most recent year. The company is currently worth $22bn, while it achieved $5.6bn in revenue in 2021.
By comparison, in early 2021, the firm nearly reached a valuation of $100bn, having only made $2.4bn in 2020. Therefore it would have a P/S ratio of around 40. This is one reason why I believe now is a good time to buy.
Impressive growth trend
Over the last four years, NIO has almost doubled car sales and doubled revenue every year. 2022 might be an exception as Covid-19 disrupts production in China. But the general trend is upwards and it mirrors that of market leader Tesla. NIO has several models already on sale and there are more on the way. A wide range of models should help NIO continue to grow revenue. The group sold more than 91,000 cars in 2021. That’s more than 10 times the number sold in 2018.
NIO was expected to deliver 32,000 vehicles in the second quarter of 2022, up from about 26,000 delivered in the first quarter. This Q2 estimate will likely be less than anticipated.
A competitive offering
Like Tesla, NIO kicked off with a lightweight sports car, albeit a considerably more powerful one than its American counterpart. Now NIO has six high-end offerings, from its flagship sedan, the ET7, to its ES6 SUV. Unfortunately, I haven’t had the chance to drive any of NIO’s vehicles. However, having watched numerous car review videos online, I’m confident that the brand does have market-leading products. They’re also well priced, even benchmarked against Tesla.
Unique battery tech
NIO has an innovative system that allows car owners to drive to a NIO garage and pick up a new battery in just a few minutes. This feature means that the car will be returned to full-range many times faster than when using conventional recharging technology – although NIO cars can still be recharged in the conventional way. I think this feature could be a game-changer for EV buyers.
Would I buy more?
I only bought last week but I would increase my position. There certainly are risks, including the impact of prolonged lockdowns in China and a possible delisting from the US stock exchange as it doesn’t comply with accounting requirements — although NIO is listed in Hong Kong and will soon be listed in Singapore.
Despite these issues, I think NIO represents great value, especially compared to market leader Tesla.
