NIO (NYSE: NIO) shares have been on a rollercoaster recently. They are down 43% year-to-date, yet they are up 40% in the last month. Furthermore, they’ve sunk over 55% in the last 12 months.
So, with the stock falling 7% yesterday, is now a good time for me to snag some cheap NIO shares for my portfolio? Or should I steer clear of the Chinese EV manufacturer? Let’s take a look.
Why NIO shares have fallen
The reason for the drop yesterday was due to the release of the firm’s 2022 Q1 results. On the whole, the results contained some good metrics, highlighting a 2.9% quarter-on-quarter increase in deliveries, and a 0.3% increase in sales. However, gross profits fell 15% quarter-on-quarter, due to margins falling almost 3%. Net losses also increased by 295% year on year. It seems these shaky results have soured investors’ appetite for NIO shares.
More broadly, the stock has been falling due to wider inflationary concerns, as well as Chinese Covid-19 measures. As inflation has soared across the globe, central banks are starting to hike interest rates. This is weighing down on the lofty valuations that growth stocks like NIO experienced at the start of 2021.
The recent Shanghai lockdown also placed pressure on NIO, as the firm was forced to suspend production in April 2022. This led to a reduction in month-on-month production just shy of 50%. In addition to this, Chinese regulators have caused delisting fears for NIO and other Chinese companies based in the US. However, in order to mitigate this risk, NIO issued secondary listings of its shares on both the Hong Kong and Singapore stock exchanges.
Can NIO climb higher?
I think there are a number of reasons why NIO stock will be able to climb higher, especially in the long run. Firstly, the company has continued to grow at an astonishing rate over the last few years. For example, between 2020 and 2021, vehicle deliveries grew 109%. Even in its Q1 2022 results, deliveries rose 28.5% year-on-year. If the company can continue growing at such a rapid rate, I think it could eat up some serious EV market share in the future.
NIO shares also looks very cheap in comparison to its competition. They currently trade on a price-to-sales (P/S) ratio of 4.8. For context, Tesla trades on a P/S ratio of 12, and Xpeng trades on a P/S ratio of 6.8. This shows me that NIO stock could be undervalued at its current price.
The verdict
Overall, I like the look of the shares at their current price. Although margins took a small hit, I think investors overreacted to this news, and a reversal of yesterday’s dip will likely occur. This dip does give me an opportunity to grab some cheap shares, and I am seriously considering making use of it to top up my portfolio.