NIO stock can be reversed if it is just a little disappointed
Nio (NIO), shares are back above $20/share after analysts upgrades
Despite renewed bullishness, shares of China’s EV maker could easily recoup these latest gains.
If Nio does not deliver, there is a downside risk. You might reconsider following this rally.
Despite mixed quarterly performance, Nio (NYSE.NIO), stock is on the rise after its Sept. 7, earnings release. This has been due to an influx of analyst upgrades for shares of the China-based manufacturer of electric vehicle (EV).
It is becoming more evident that there will be a huge jump in sales in the second half of 2022 as well as the first part of 2023 due to the company’s production rampup. It’s unlikely that the company’s current rally will be repeated.
There is a possibility that the ramp-up might not be able to deliver the results expected. The stock may lose its recent gains. Nio’s growth could slow down over the long term. Today’s bullishness may be reversible, as high growth is already priced in.
NIO Stock Rises Post-Earnings
Nio may not have been able to beat revenue in the second quarter, but there was little to cheer about. As expected the pace of growth in China was slowed by its pandemic shutdowns, both year-overyear and sequentially.
The EV maker also reported a greater-than-expected Net Loss. Comparable to the same quarter last year, net losses per shares were up by 316.4%. The market focused on the company’s outlook in Q3, and not the Q2 results. This calls for a faster recovery of growth.
NIO stock saw a slight gain right after earnings. However, analyst upgrades sent shares skyrocketing. InvestorPlace’s Eddie Pan reported that on Sep 12, two analysts (Deutsche Bank’s Edison Yu, BofA’s Ming Hsun Lee) reiterated their “buy” ratings and have raised their price targets.
Both analysts predict that deliveries will increase significantly in Q4. This is due in part to Nio’s vehicle launches and production ramp-up. However, the stock market’s recent spike could indicate that the situation is not improving to the extent expected.
How its Latest Uptick Could Go Reverse
NIO stock may be gaining momentum and it could seem like the perfect time to buy. It seems like the stock’s recent surge was short-lived. There are many indicators. The market is now pricing in a possible growth acceleration as a near-certainty with its recent move above $20 per shares.
Nio must achieve its Q3 deliveries projection and meet the expectations of the sellers in Q4. This will allow the stock’s movement to continue higher or even to stay lower. Maybe it’s possible to reach its Q3 target. Since June, it has delivered more than 10,000 units per month. Q4 could be a larger order.
Nio needs 57,000 vehicles to meet Edison Yu’s 2022 goal. This is between October and December. This is nearly double the projected Q3 deliveries.
This might seem like an easy task with Chinese government incentives and increased production. But, China’s slowdown may make these positives less attractive.
This causes delivery numbers for the next months to be lower than anticipated. It could lead to stock losses, even though it was a close call.
The Verdict On NIO Stock
My Portfolio Grader assigns Nio stock a D rating. The shares may not only pull back in the short-term, but could also continue performing poorly in future years. Long-term bulls expect high growth to continue. Even if growth in its own market slows, they believe it will experience high-growth international.
Only time will tell if this first overseas expansion (in Europe), is successful. It could be up against stronger competition in China. It may face competition from European luxury brands and incumbents, as well as Tesla (NASDAQ TSLA), in Europe.
It might abandon its North American expansion plans if Europe fails. Nio cannot sustain its current valuation without international expansion.
It is possible that the stock will disappoint in the third quarter. This could be a reason why you don’t want to invest in NIO stocks.