NIO Is Taking Off – Buy The Bottom (NYSE:NIO)

NIO – Finally Cheap Again

It’s been a long time since NIO (NYSE:NIO) was considered a bargain, but we are at that stage now. Its share price has remained relatively high since the early and mid days of 2020. That was the first time I bought this stock in the $10-$13 price range. Then, NIO’s price increased, and I added in the $17-$20 range. I unloaded most of my NIO shares in the $50-$60 range in late 2020 and early 2021. With the stock back in the $10-$15 range, it may be an excellent time to build another longer-term position in NIO.

NIO is gaining momentum, and as sentiment improves, the company’s stock price could go much higher. Higher than anticipated revenue growth and more significant profitability may push NIO’s stock price substantially higher in the coming years. At these extreme lows, NIO is a strong candidate for a 5x return by 2025 and remains a leading China segment portfolio pick for 2023 and beyond.

NIO’s Recent Results

NIO recently missed earnings estimates by 14 cents, yet, revenue came in at $1.83 billion, beating estimates by $50 million. NIO also provided solid guidance for Q4, with expected deliveries in the 43,000-48,000 range for the fourth quarter (72-92% YoY increase). In November, NIO reported a record-high delivery number of 14,178 vehicles, a 30.3% YoY increase. NIO’s delivery capacity continues to rise, while demand for NIO’s vehicles remains robust. NIO should continue delivering solid revenue growth and could improve its profitability substantially as the company advances.

NIO is a Special Case

Many Chinese stocks may be undervalued here, but NIO is a particular case. NIO is a premium pure-play EV manufacturer, producing some of the best EVs globally. Moreover, NIO is a Chinese company, providing it with a home court advantage in the most significant EV market in the world. Furthermore, NIO is remarkably cheap relative to its Western counterparts, some of which still need to demonstrate the ability to mass-produce vehicles.

NIO vs. Others Valuation

Forward P/S Ratio

• NIO: 1.5
• XPeng (XPEV): 1.34
• Li Auto (LI): 1.6
• Tesla (TSLA): 5
• Lucid (LCID): 7
• Rivian (RIVN): 5

The Takeaway

The Chinese companies trade at significantly discounted multiples relative to their American counterparts. If NIO were valued close to Lucid’s or Rivian’s valuation, its stock would be around $50-$75. At about 1.5 times forward sales, NIO is dirt cheap, and the stock is a bargain.

NIO’s Revenues Projections

Consensus revenue estimates are around $14 billion next year and roughly $18 billion in 2024. However, provided the negative sentiment associated with China, the economic slowdown, and other variables, revenue and EPS estimates have been adjusted lower in recent quarters and maybe lowballed. Realistically, NIO could generate around $15 billion in revenues next year, roughly $20 billion in 2024, and should expand sales to $25 billion or more in 2025. NIO’s market cap is around $20 billion, implying a forward P/S ratio of only 1.33. Additionally, considering that NIO could bring in about $25 billion in revenues in 2025, its stock is trading at only around 0.8 times 2025 sales estimates now.

Significant EPS Growth Potential

NIO has significant earning potential, and it’s well-positioned to benefit from cheap labor and improved efficiency as it expands its economies of scale. There is a high probability that due to higher productivity and efficiency, NIO can become more profitable sooner than many analysts expect now. Higher-end EPS estimates are for $0.50 in 2025, but as NIO revenue growth explodes, the company may become more profitable sooner, possibly delivering $1-$2 in EPS around the 2025-2027 timeline.

What NIO’s stock price may look like in future years:

Year	2022	2023	2024	2025	2026	2027	2028
Revenue Bs	$7.5	$15	$20	$26	$33	$42	$53
Revenue growth	32%	100%	33%	30%	28%	26%	25%
EPS	N/A	$0.20	$0.40	$0.95	$1.45	$1.95	$2.50
Forward P/E	65	60	55	50	45	40	35
Stock Price	$13	$24	$52	$73	$88	$100	$120

Click to enlarge

Source: The Financial Prophet

The Bottom Line – It’s All About Sentiment

The sentiment is crucial to any company, especially to a hyper-growth one like NIO. We see enormous revenue growth potential for NIO in future years. After the company streamlines revenues by 100% next year, we expect significant 25-35% annual revenue growth for several years. Therefore, there should be great demand and opportunity around the upcoming revenue increase phase. NIO should also improve its operations through increased efficiency and its economies of scale implementation. There is also a distinct probability that we will see gross, operating, and other income margins strengthening. Therefore, NIO’s profitability and EPS could expand more significantly than expected in the coming years, and we could see NIO’s stock price around $100 in several years.

Risks to NIO

Despite my 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. NIO remains an elevated-risk investment, but there is substantial reward potential if everything goes right.