Nio (NYSE:NIO) stock was trading at $49.23 at the start of 2021.
During January of that year, it peaked at $61.37.
Unfortunately, for shareholders, this marked the end of an incredible run, which saw the stock rocket by almost 1,200% from the start of 2020.
From there on, Nio stock would continue to disappoint up until this day.
It now trades at only $8.42 apiece, representing a collapse of almost 83% from the beginning of 2021.
For perspective, if I’d invested £10,000 then, I’d only have £1,710 today. This would have been a huge loss.
I’ve dipped in and out of Nio stock before. However, this was during its great rise in 2020. I began accumulating its stock at an average price of about $4 in April before selling my entire holding at roughly $12 a share in July of that year.
I remember feeling great regret not too soon after as its price skyrocketed to over $60.
In hindsight, it doesn’t seem too bad for me as its fortunes have certainly turned for the worse since.
However, I’ll examine below whether Nio can reverse the trend of the last three years and reward shareholders again.
Stellar growth
In its latest quarterly results, Nio announced sales of $2.4bn, an increase of 46% year on year (yoy).
This is amazing growth for any company.
It also keeps breaking records for the number of vehicle deliveries it’s making every quarter.
During this quarter, 55,432 deliveries were completed, a 75% rise yoy. This showcases its remarkable ability to keep growing.
For this reason, comparisons have been made with Tesla, another prominent growth story in the electric vehicle (EV) market.
Understandably, as Tesla saw similar growth a few years back, optimism exists for Nio stock.
Why I’m not so convinced
However, a lot more than strong growth is needed to make a stock worthy of investment.
One aspect that puts me off Nio is its lack of profitability.
The company’s net loss keeps widening every year. Between 2020 and 2022, it has nearly tripled to almost $2.1bn.
This shows no signs of slowing down in 2023, with its third-quarter results showing the loss increasing by 11.7% to $634m for that period.
Furthermore, there is an issue of debt, which is also rising. Right now, there is almost $1.7bn of long-term borrowings on its balance sheet.
This isn’t something I’m particularly fond of when looking to invest in a stock, especially a loss-making one.
However, it’s also important to note that even though this is a concern, it’s not too significant in the short term, as Nio does have $3.3bn of cash.
Now what?
Nio is growing at a ridiculously fast speed. The loss might have tripled in the last three financial years, but so have its sales.
I’d say that makes it difficult to make a judgement on it.
I believe that it could be very rewarding in the long term.
However, I don’t see that being anytime soon, not until it gets closer to profitability.
Furthermore, the EV market is currently experiencing a slowdown, which dampens hope that its stock will return to winning ways in the near term.
Therefore, I don’t believe it’d be wise for me to invest in Nio stock and I’ll be avoiding it for now.
