Electric vehicle (EV) companies face a steep hill on the path to profitability. Navigating the vast technical requirements, inconsistent consumer demand, increased competition, and regulatory hiccups poses hurdles for industry players.
This holds especially true for Chinese firms facing headwinds from geopolitical tensions with the U.S. and the EU, as both of these major markets have imposed tariffs on imports of Chinese EVs.
Chinese EV maker Nio (NYSE:NIO) has particularly struggled, with its stock plummeting by 52% since the year began.
And yet, things might be better for Nio than the market realizes, according to one investor.
“NIO’s delivery upswing plus an improvement in margins paint a more positive picture than the market appears willing to accept,” says On The Pulse.
In May, Nio shipped 20,544 vehicles, a promising sign following monthly deliveries south of 10,000 just a few months prior. However, according to the investor, the market is seeking additional improvements regarding its profit margins before rewarding the company.
Still, with a stock price equivalent to 1.01x of expected 2024 sales, there could be gains to be made by staking a position at current levels.
“In the long-run, taking into account the upward trajectory of NIO’s sales and deliveries, that NIO could sell for 2.0x sales (implied stock price $8.00) and would deserve so if NIO made progress in terms of lowering its operating losses… NIO has sold for substantially higher sales multiples in the past which is when investors were more bullish about EV companies generally,” the investor explains.
Ultimately, On The Pulse reaffirms its Strong Buy rating on NIO shares, believing that the potential rewards outweigh the risks in the current market environment. (To watch On The Pulse’s track record, click here)
Shifting our focus to Wall Street, there is a range of opinions on Nio’s prospects. With 5 Buy recommendations, 6 Holds, and 1 Sell, Nio currently holds a consensus Hold rating. However, its 12-month average price target of $6.19 suggests potential returns of 33%, indicating that even analysts who have given Nio a Hold rating foresee an upside to the stock. (See Nio stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
