NIO's stock is on sale

-

2020 was a big year for NIO. It went from being nearly bankrupt to cementing itself at the forefront of the Chinese EV cohort with strong delivery numbers.

Last week NIO delivered its Q4 earnings. The results did not impress due to slight currency impacts to EPS and forward looking commentary on deliveries from chip shortages. NIO's management upbeat take on the earnings didn't stop the shares from dipping double-digits on Friday. Despite shedding 50% of its January high valuation, I remain bullish on NIO's long-term prospects and think that the stock was a catch at prices it was trading on last Friday and Monday.

The stock is likely to continue to struggle in the next few weeks due to worries over NIO's short term performance which will be impacted by chip shortages. The shortages are expected to decrease the monthly production run rate by 25% to 7,500 units for Q2, However, these issues are expected to ease through the second half of the year, allowing capacity to ramp back up to normal.

In China, demand remains very strong for the "Tesla of China". NIO is also planning to expand to Europe and developments are expected in 2021. It is expected that volume growth will allow margins to improve to mid-teens, setting NIO up to hit profitability by Q4 and annual profitability by FY22 at the earliest in an upside scenario.

Also, over the past year, NIO has significantly solidified its balance sheet by issuing stocks and cashing on its skyrocketing stock price. I liked this move very much.  It's true it came at the cost of some dilution for investors but it also secured the company's safety from bankruptcy.

In my opinion, NIO is suffering from the effects of the EV valuation crunch that has hit all players in the EV space. But while the valuation has come down quite a bit, NIO's prospects remain in tact. In fact, I have added to my position in NIO when the stocks dipped on Friday. It will be interesting to see the impact of Tesla's price reductions on NIO but overall I'm still bullish on NIO. 


Disclaimer: This post is merely my own assessment and is not an investment recommendation. For professional advice, seek input from a licensed investment advisor.

Comments

Post a Comment

Popular posts from this blog

Bitcoin and the 99 other coins

-
So far Bitcoin is having a decent 2021. It hit a record high of more than $41.5K last week, continuing the upward trajectory it has been on since April of last year, when a single Bitcoin cost less than $5K. That rise now means that the sum of all Bitcoins in existence is worth more than $700B.  Because Bitcoin dominates much of the media's attention, it can be easy to forget just how many other cryptocurrencies there are. A quick look through the full list from coinmarketcap reveals over 100 alternative cryptocurrencies with a "market cap" of more than $100M. Each hoping that their unique take on the core blockchain technology will be enough to propel them out of obscurity, to where Bitcoin is today. With some of the names on the list you can't help but think someone is having a joke, or planning something nefarious - there is a "dogecoin", "YEP COIN", "OMG" and even "SushiSwap" (???). This time it's... different? Some of
Read more

Why the stock market is beating expectations

-
Image
  In the early stages of the pandemic, the S&P 500 index dropped a third of its value. Since then it has roared back, soaring more than 50 percent from its low in late March and setting an all-time high last week. This seems very implausible when set against the current state of the economy and the ongoing devastation caused by the pandemic. So why is the stock market rallying in the face of a pandemic and bad economic news? Several explanations are plausible. The stock market is not the economy: The stock market represents publicly traded companies only; it’s not the whole market. Most importantly, it’s always forward looking; i.e. it’s an indicator of the future earnings of those companies and how they would fare in the future. A rising stock market indicates that investors think these companies will do better in the future. On the other hand, a falling stock indicates that investors are pessimistic about the future earnings of companies. Continued income support for the econom
Read more

Netflix: No more burn?

-
In the last article on Netflix , I discussed why Netflix's promise to premiere a movie every week is not an overly ambitious strategy for the streaming giant. It's a brilliant move that isn't risky because Netflix can keep spending at this high rate for a long time. Yesterday's earnings call confirmed this. During the call, Netflix announced that it does not intend to raise any more capital, through debt or equity, as it plans to be cash-neutral this year and cash-flow positive beyond 2021. Looks like all those price increases are flowing through to the bottom line. Of course, saying you don't need any more capital is a really great way of getting people to offer you more capital at even more attractive rates (if you ever did want it).
Read more