NIO (NYSE:NIO) shares have proven to be among the most volatile worldwide. The market is clearly still struggling to value the company with the stock swinging fairly widely following monthly deliveries figures.
The Chinese electric vehicle (EV) manufacturer is among the most promising rivals to Tesla. It offers a range of exciting and highly innovative vehicles, but remains loss-making.
So is NIO a good investment? Let’s take a closer look.
A volatile year
NIO is down 59% over one year. That’s huge, but it’s only part of the story. A year ago, NIO was down around 70% from its highs during the pandemic.
So if I had invested £1,000 a year ago, today I’d have around £420. That’s also because the pound is slightly weaker versus the dollar than it was a year ago. NIO isn’t listed in the UK, so the best place to buy this stock is in the US where its naturally listed in dollars.
Bottoming out
With the stock trading around $8.90, I don’t see it falling much further. After a general downward trend over the past two years, the current price point appears to be something of a floor.
I’d also suggest the market has overreacted to negative updates and has ignored the broader growth story. This week, the stock fell 10% after NIO’s deliveries in March came in lighter than some had expected, resulting in a Q1 total of 31,040 vehicles.
Investors maybe in something of a “show me” phase, as they look for performance to match up with their expectations for growth. That hasn’t really happened yet, but the forecasts are still very positive.
Analysts project NIO’s revenue in the second half of the year to surge to $7.3bn. This suggests a near 70% increase compared to H1 projections. The company is still loss-making, but is expected to start turning a profit in 2024/2025.
Fair value
It’s hard to put a value on a loss-making EV company. The market is expanding significantly, but there are concerns about NIO’s ability to reach non-Chinese markets, due to geopolitical tensions. Margins also fell in Q4, but I understand that’s due to effort to clear older stock. Despite this, it remains highly promising.
However, one way to generate an idea of value is using the price-to-sales ratio. NIO trades at 2.2 times sales, while Tesla trades at 7.4, and Rivian at 8.5.
So NIO is among the cheapest EV stocks out there, and that’s surprising as I believe its unique battery-swapping technology provides it with a real advantage moving forward. NIO cars can pull up to a NIO station and have their empty batteries changed for full ones in a matter of minutes.
Because of it’s relative valuation versus American peers, and it’s parity with Tesla on performance, I do see NIO as being significantly undervalued. That’s why I recently added more to my portfolio.
