NIO (NIO) is a Chinese multinational electronic vehicle designer and manufacturer. The company has developed a stronghold in the Chinese market with its product-driven business model. I am bullish on the stock.
NIO’s Hong Kong Listing
NIO announced on March 9 that it successfully listed its shares on the Hong Kong Stock Exchange. The newly listed shares are fully fungible with its NYSE-listed depositary receipts, meaning that one share of NIO in Hong Kong is replicated by its ADRs listed in the United States.
The automaker stated that its rationale for listing in Hong Kong is to further expand its investor base and increase its access to capital markets.
The outstanding benefit of its secondary listing is that it provides NIO with an additional stream of investment inflow, allowing it to scale its operations much faster than it has in the past.
Additionally, there’s been much talk of Chinese ADRs being subject to delistings by the SEC. The magnitude of NIO’s capital raise in Hong Kong hedges the funding risks that the firm is facing in the United States.
Fundamentals
As things stand, the EV market in China has an advantage over the rest of the world in that it isn’t operating in an economy with red hot inflation. China’s inflation rate has only increased by 0.90% during the past year, while the USA’s inflation has spiked by 7.9%.
Thus, we’re likely to see Chinese consumers possess superior real purchasing power than the United States’ consumers, and this could be something that investors will emphasize when searching for a “best-in-class” EV stock.
I’m expecting many investors to pivot towards stocks of companies that sell Veblen goods in markets that hold a few big players rather than a broad dispersion of substitute products, and NIO could end up on the winning side if it pans out that way.
Oversold Territory & Undervalued
NIO is an oversold asset as its RSI is trading near 30 on a weekly timeframe, meaning that it’s a genuine “buy the dip” opportunity. Much of the ADR’s value was shed during the past six months due to geopolitical risks. However, most systemic risks have seemingly been priced in, and I think there’s value in abundance from here on in.
The ADR is trading at a price-to-sales discount of 64% relative to its five-year average, suggesting that the market hasn’t taken note of the company’s recent scale.
Additionally, NIO’s tangible book value has risen by ~210% during the past year, which results in a higher intrinsic value, especially considering the firm has trimmed its total debt/equity ratio down to only 69.2%.
Wall Street’s Take
Turning to Wall Street, NIO has a Strong Buy consensus rating, based on 10 Buys and two Holds assigned in the past three months.
The average NIO price target of $51.14 implies 185.7% upside potential.
Concluding Thoughts
NIO’s listing on the Hong Kong Stock Exchange provides it with an additional stream of funding, allowing it to scale faster than it did in the past. Fundamental factors align well with the ADR’s prospects, especially considering the fact that it’s trading at a discount relative to its historical average.
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