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NIO stock: Nio’s product diversity makes it a long-term buy


  • It’s been almost three weeks since Nio (NIO) announced its deliveries for April 2022.
  • With four vehicles in production, Nio more than follows You’re here (TSLA).
  • Up nearly 19% in the past week, NIO stock appears to have bottomed out. It is now a long term purchase.

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When Nio (NYSE:NIO) announced its April 2022 shipments update on May 1, investors were not impressed with the 28% decrease a year ago and 49% fall from March. NIO stock eventually fell from $18.13 on May 4 to $12.71 on May 11.

However, thanks to Bank of America analyst Ming Hsun Lee on May 16 improve from Nio to “Buy” to “Neutral”, combined with a one dollar increase in its target price to $26Nio shares are getting a few more nibbles from investors.

Up nearly 19% in the past week, it seems the analyst is right to suggest that the electric vehicle (EV) maker’s worst days are likely behind it. I would agree.

I believe the company’s product diversity has something to do with this rebound. For this reason, I too believe that Nio’s share price has bottomed out. It is now a long term purchase.

NIO Stock hasn’t been this cheap since 2019

One of Lee’s arguments for buying Nio at current prices is its valuation. Its enterprise value is currently 1.7x sales. Investors haven’t applied such a low price-to-sales (P/S) ratio since the second half of 2019 and the first half of 2020.

“NIO’s current operations are much better than they were in 2H19-1Q2020, and we expect its prospects to be better in terms of sales growth, margin recovery and overseas development. “, MarketWatch reported Lee wrote in a note to clients. “In our view, the current valuation is attractive for investors to revisit the stock.”

Consider the valuation of You’re here (NASDAQ:TSLA), the world’s largest producer of electric vehicles. It has an enterprise value of $739.5 billion and the sales of the last 12 months of $62.2 billion. That’s an enterprise value to sales (EV/S) of 11.9x, 7x Nio’s advanced EV/S multiple.

Suppose you use Tesla 2023 sales estimate from $116.2 billion, the EV/S multiple drops to 6.4. However, if you apply Nio’s 2023 sales estimate of $15.8 billionn, its EV/S multiple drops to 1.2, or one-fifth of Tesla’s valuation.

That seems out of place, given that Nio is already shipping four vehicle models to customers, and more are on the way.

Nio’s Product Diversity Matches Tesla

What stood out to me about Nio’s Covid-affected April deliveries update is that he delivered 693 ET7, the company’s fourth vehicle to leave the Hefei plant. That’s a 325% increase from the 163 ET7s delivered in March, its first month available to customers.

Nio could deliver 1,000 vehicles for each of its four electric vehicles in May. While these aren’t Tesla numbers, they’re damn good for a company that’s been struggling to keep the lights on as recently as April 2020.

How many electric vehicles does Tesla have? It also has four: Model S, Model 3, Model X and Model Y. Tesla launched its first vehicle in 2012, a decade ago. Nio launched its first vehicle (ES8) in December 2017. So it took just over four years to have an equal number of products to sell to potential customers.

And now it plans to start production of its consumer sub-brand in 2024. So if Tesla isn’t careful, Nio will pass.

Yes, NIO Stock is a long term buy

If you bought NIO shares at or near their 52-week May 12 low of $11.57, I would congratulate you on your wise move. It hasn’t been this low since July 2020. However, it has delivered a lot of vehicles in the meantime.

As the BofA analyst said, the company’s sales and margins are improving, but investors are liking it as if it had never delivered a vehicle before. I hate to tell you; it will officially top 200,000 cumulative deliveries in its history once it announces the May figures in two weeks.

If you’re an aggressive investor, even at $16.50, NIO stock is a great long-term buy.

As of the date of publication, Will Ashworth had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.

Will Ashworth has been writing about investing full time since 2008. Publications where he has appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and many others in the US and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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