NIO (NYSE: NIO) is a growth stock that has delivered disappointing returns recently. Since 11 January, NIO’s share price has fallen from around $67 to $38. That represents a decline of a significant 43%. Over the last 12 months, however, the stock is still up around 1,250%.
I’ve said before that I believe NIO stock looks like an interesting opportunity. The company is growing rapidly and the market for electric vehicles (EVs) in China is expected to grow significantly over the next decade. So, should I take advantage of the recent share price fall and buy in? Let’s take a look.
NIO: strong growth in 2020
NIO’s recent full-year 2020 results, posted on 1 March, showed that the company continues to generate impressive growth.
In the fourth quarter of 2020, for example, NIO delivered 17,353 vehicles. That was 111% higher than the number of vehicles it delivered in Q4 2019. Meanwhile, for the full year, the company delivered 43,728 vehicles, up 113% year-on-year. Total revenues for 2020 were up 108% to approximately $2.5bn. The company’s net loss decreased by 53% to $813m in 2020.
Encouragingly, 2021 started well with the company delivering 7,225 vehicles in January and 5,578 vehicles in February. These figures were up 352% and 689% on the year, respectively.
Hit by the semiconductor shortage
Recent news from NIO hasn’t all been positive, however. Unfortunately, like many other technology companies, NIO has experienced disruptions from the global semiconductor shortage recently.
On 26 March, it announced that it would be temporarily suspending vehicle production activity in the JAC-NIO manufacturing plant in Hefei for five working days starting from 29 March due to the shortage. This is likely to impact sales figures in the short term. NIO has said that it now expects to deliver approximately 19,500 vehicles in the first quarter of 2021, versus previous guidance of 20,000 to 20,500 vehicles.
If the semiconductor shortage persists (some analysts believe it could last all year), NIO’s share price may fall further.
Is NIO’s share price a bargain?
Turning to the valuation, it now sports a market capitalisation of about $60bn after the recent share price fall. Wall Street analysts expect the company to generate sales of $5.4bn this year, which means that the stock’s price-to-sales (P/S) ratio is 11.1. This is certainly a lot more reasonable than NIO’s P/S ratios of the recent past (i.e. 19 when I covered the stock in early February). Interestingly, it’s lower than that of Tesla, which currently sports a P/S ratio of about 13.2.
However, when you consider that NIO only sold 43,728 vehicles last year, the valuation is still no bargain. The current market cap equates to a valuation of around $1.4m per car sold. I think that’s relatively high considering the immense amount of competition NIO is likely to face in the years ahead from the likes of SAIC Motor, XPeng, Li Auto, and Alibaba.
NIO stock: my move now
Weighing everything up, NIO stock is still not a buy for me personally.
All things considered, I think there are safer growth stocks I could buy for my portfolio today.