Should I buy NIO stock near a 52-week low?
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I’ve steered away from NIO (NYSE:NIO) inventory till now.
With the advantage of hindsight, that was a sensible choice. Though the electrical car (EV) maker loved a powerful inventory market rally in the course of the pandemic, it’s been caught in reverse gear over time since.
Right this moment, the NIO share worth has fallen beneath its IPO worth at underneath $5.50. This would possibly look low cost, however I must decipher whether or not the inventory’s a real discount purchase or if topsy-turvy monetary outcomes level to additional challenges forward.
Combined indicators
It’s laborious to attract agency conclusions from NIO’s latest earnings report. The corporate’s nonetheless an unprofitable enterprise. It posted a internet lack of $776.4m within the closing quarter. The total-year deficit stands at a whopping $2.9bn.
These numbers don’t instantly fill me with confidence. Nevertheless, it’s value remembering that Tesla‘s first full-year revenue took 18 years to materialise. NIO isn’t even a decade outdated but.
Full-year car deliveries elevated over 30% yr on yr, eclipsing 160,000 for the primary time. However this quantity deserves scrutiny too. Though the trajectory appears promising, gross sales got here in effectively beneath the agency’s unique goal.
Maybe the most important trigger for concern is NIO’s weak gross margin. At 5.5%, it’s virtually half what it was in 2022. In contrast, home competitor Li Auto had a a lot more healthy 22.2% gross margin final yr and for Tesla the determine was 18.2%.
Nonetheless, there have been eye-catching latest developments. A considerable money injection from the closing of a strategic funding by UAE-based fund CYVN and the launch of its hyper-premium ET9 flagship sedan are notable highlights.
The massive image
A lot has been written concerning the long-term development potential of the EV market each in China and the broader world. Emissions discount targets and authorities incentives proceed to behave as structural helps for NIO inventory and different EV shares.
That stated, there are indicators the growth is slowing within the firm’s dwelling market. In line with Fitch Scores, Chinese language EV gross sales are anticipated to develop 20% this yr, down from 30% in 2023. Furthermore, competitors within the sector is more and more cutthroat and the worth battle between carmakers is escalating.
There’s little question the brand new ET9 is an expensive product. But, I’m nervous that NIO’s technique to launch its most costly automotive to this point amid wider fragility on the earth’s second-largest economic system is perhaps a mistimed step as shoppers search for cheaper fashions.
Past the slowdown in EV demand, there are additional challenges for the NIO share worth from the brutal inventory market sell-off that has affected the overwhelming majority of Chinese language and Hong Kong shares. State-backed intervention has rekindled some confidence, however main dangers stay.
Will I be shopping for?
NIO shares look way more tempting to me at right now’s worth than they did at sky-high ranges round $62 in the course of the pandemic. The value-to-sales (P/S) ratio round 1.2 additionally appears notably affordable in comparison with the broader sector.
Nevertheless, I nonetheless have severe issues concerning the firm’s margins and premium product technique along with a reluctance to purchase Chinese language shares at current.
I received’t be investing right now, however traders who purchase into the corporate’s imaginative and prescient could want to think about doing so whereas the inventory trades close to a 52-week low.