The Cineworld (LSE:CINE) share price has exploded higher today. As I write this, shortly after lunch, shares in the cinema operator – which filed for ‘Chapter 11’ bankruptcy protection in the US in September – are up about 160% for the day. However, earlier on, they were up more than 200%.

So, what’s behind this huge share price spike? And is Cineworld stock worth buying for my portfolio now that it’s on the up?

Why Cineworld’s share price just spiked

The main reason the share price has skyrocketed today is that yesterday, Cineworld (which recently advised that it was seeking to implement a de-leveraging transaction to reduce its debt and capitalise on its business strategy as part of its Chapter 11 case) announced a bankruptcy settlement with its landlords and lenders. This will allow the cinema operator to borrow an additional $150m and make a $1bn debt repayment.

Previously, landlords and creditors had been opposed to the company’s billion dollar debt repayment plan. However, they dropped their opposition to the plan after Cineworld agreed to pay at least $20m in rent that will accrue after 30 September 2022. It had previously said that it didn’t intend to make any post-September rent payments until the end of its bankruptcy.

Cineworld also agreed to look into a potential sale of the company, and allow creditor input on its business plan going forward.

Did Cineworld just do a GameStop?

As for the magnitude of the share price increase (it’s not often you see a stock rise 200%+ in a single day!), I suspect there may have been a bit of a GameStop-like ‘short squeeze’ here.

According to my data provider, there were 23.4m Cineworld shares on loan as of yesterday. With the share price rising sharply this morning on the back of the bankruptcy settlement news, short sellers betting against the stock will have scrambled to buy Cineworld shares to close out their short positions. This will have pushed the share price up even higher.

Should I buy Cineworld shares today?

As for whether I’d buy Cineworld shares today, I’m not convinced that they offer an attractive risk/reward proposition from here.

No doubt, the bankruptcy settlement news is a positive development. The settlement means that Cineworld, and its shareholders, live to fight another day.

However, this development doesn’t change my view that Cineworld is a risky stock.

Debt on the balance sheet remains worryingly high. At 30 June, bank and other loans amounted to just under $5bn while net debt was $8.8bn. It’s fair to say that Cineworld is going to have its work cut out to service this level of debt (especially with interest rates rising).

Meanwhile, I think it’s likely that the Cineworld share price will be very volatile going forward. It’s worth noting that after hitting 9p earlier today, the stock then fell back below 6p (a 30%+ decline). This kind of stomach-churning volatility isn’t for me.

So, I’m going to leave Cineworld shares on my watchlist for now and focus on other stocks. All things considered, I think there are better stocks to invest in today.

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

abrdn (LSE: ABDN) shares are quite popular within the UK investment community, due to their high dividend yield. Last year, the asset manager paid out 14.6p per share in dividends to shareholders, which equates to a yield of around 9.1% at today’s share price.

I’ve been looking to buy some more dividend stocks recently, as dividends are extremely valuable when markets are choppy. Should I buy abrdn shares though? Let’s discuss.

Are the shares worth buying?

Looking at abrdn today, I can’t say I’m particularly excited about the stock. For starters, the company doesn’t have much momentum right now. For the first half of 2022, it reported:

• Fee-based revenue of £696m, down 8% year on year

• Adjusted operating profit of £115m, down 28% year on year

• Adjusted diluted EPS of 3.7p, down 47% year on year

• Assets under management of £508bn, down from £542bn at the end of 2021

Overall, performance in H1 was poor. Of course, things could improve if global stock markets begin to rise again. However, there’s no guarantee this will happen any time soon.

Dividend cut?

Secondly, the dividend looks at risk of a cut. As I mentioned earlier, it paid out dividends of 14.6p per share last year. However this year, earnings per share (EPS) are only expected to be 8.7p. This means that they won’t cover the dividend.

It’s worth noting that in the first half of the year, adjusted capital generation amounted to £107m. Yet the company paid out £154m in dividends for the period. In other words, the company didn’t generate enough capital to cover the dividend.

This leads me to believe the firm may have to reduce its dividend soon.

Lack of competitive advantage

Another issue for me is the lack of competitive advantage. abrdn operates in a very competitive industry and doesn’t appear to have an edge over its competitors. This is illustrated by the fact that for the five-year period to the end of June, just 34% of its equity funds outperformed their benchmarks. With that kind of performance, it could lose market share to passive management providers such as iShares.

High valuation

Finally, the company’s shares aren’t cheap. Given that analysts expect EPS of 8.7p this year, the forward-looking price-to-earnings (P/E) ratio here is about 18.4. That’s significantly above the median FTSE 100 P/E ratio. So I don’t see much value on offer here right now.

My move now

Now I don’t want to sound too bearish on abrdn shares. One reason to be optimistic here is that the asset manager is shifting its focus to high growth areas such as real assets and alternatives. This is a smart move, to my mind.

Another reason to be optimistic is that a top-level insider (the CFO) bought some shares in the company recently.

However, overall, I don’t see enough appeal in the stock to buy it. All things considered, I think there are better dividend stocks to purchase for my portfolio today.

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In Tesla’s (NASDAQ: TSLA) Q3 earnings call last month, Elon Musk said that he believes his company has the potential to be bigger than Apple and oil giant Saudi Aramco combined.

This got my attention. Currently, Tesla has a market capitalisation of about $716bn. However, Apple and Saudi Aramco have a combined market-cap of around $4.6trn. If Elon Musk is right, Tesla stock could be a huge winner from here.

Should I buy the growth stock on the back of this bold call from the ambitious CEO? Let’s discuss.

Tesla stock has huge potential

In the long run, I do think Tesla has the potential to get much bigger. This isn’t just a car company. Instead, it’s a car company, a battery company, a solar panel company, an artificial intelligence company, and much more.

I’ve said before that what really excites me about Tesla is its autonomous driving technology. I see a lot of potential here. If the company can crack full ‘Level 5’ self-driving technology, it could launch a ‘robotaxi’ service and ultimately change the way we get around forever.

It’s worth noting that this robotaxi concept is a major part of Cathie Wood’s investment thesis for Tesla. In a research report published last year, the high-profile fund manager put a 2026 share price target of $1,533 ($4,600 before the recent stock split) on the stock on the back of the robotaxi potential. At the time, her view was that there was a 50% chance that Tesla will achieve fully autonomous driving within five years.

Given the growth potential here, I wouldn’t rule out the possibility of Tesla becoming bigger than Apple and Saudi Aramco combined at some stage. I think it’s certainly possible.

Downside risk in the short term?

Having said that, I think there’s a chance Tesla stock could keep falling before it climbs meaningfully higher. In the short term, the company is facing a number of challenges.

For example, right now Tesla is facing major supply chain and logistical issues. This is illustrated by the fact that last quarter it produced 365,923 electric vehicles, but only managed to deliver 343,830 of them. This delivery figure was below analysts’ estimates.

It’s also facing intense competition. This is forcing the company to slash its car prices. In China, it recently cut its starting price for Model 3 and Model Y by up to 9%.

Meanwhile, deteriorating economic conditions could also be an issue for Tesla. In a recession, people tend to hold off on making large purchases.

As for the valuation, it remains quite high. Currently, the forward-looking P/E ratio here is around 56. At that valuation, I think there’s downside risk in the short term. And I’m not the only one who is concerned about the valuation.

“We remain cautious on valuation, particularly in the context of lofty unit volume growth expectations, and continue to see material downside risk to our December 2023 price target,” wrote JP Morgan analyst Ryan Brinkman recently.

My move now

Given the near-term risks to the share price, I won’t be buying Tesla stock just yet. I may invest in the company in the future. However, right now, I think there are safer growth stocks to buy for my portfolio.

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Edward Sheldon has positions in Apple. The Motley Fool UK has recommended Apple and Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Taylor Wimpey (LSE: TW) shares are quite popular within the UK investment community. It seems investors like the big yield on offer from the FTSE 100 housebuilder.

Have the shares actually been a good overall investment recently though? Let’s take a look at how much money I’d have today if I’d invested £5,000 in the stock a year ago.

Taylor Wimpey shares have fallen

On 1 November 2021, Taylor Wimpey’s share price ended the day at 151p (I’ll use this figure as my starting share price). However today, the stock is trading at 94p – 38% lower.

This means if I had put £5,000 into the stock 12 months ago, my capital would now be worth about £3,110 (ignoring all trading commissions). That’s not a good result.

Of course, we also need to factor in the big dividends here. If I’d bought the stock a year ago, I would have received one dividend payment of 4.44p per share in May. And I’d be entitled to another dividend payment of 4.62p per share, which is set to be paid out on 18 November. Assuming I took these in cash and didn’t reinvest them, these dividends would be worth about £300.

Putting the original investment and the dividends together, the total comes to around £3,410. So, overall, I’d be down a little over 30% on my original £5k investment.

That’s a disappointing result. To put it in perspective, if I’d invested my £5,000 in a basic FTSE 100 tracker fund, I’d now have about £5,040.

Lessons from the share price fall

I think there are a couple of takeaways from these calculations. One is that housebuilder stocks can be very volatile due to their cyclical nature.

House building is a boom and bust industry. As a result, investors will flee the sector if there’s a hint of an economic downturn. This can push share prices across the sector down significantly. So portfolio diversification is very important when investing in these stocks.

If I owned a bunch of housebuilder stocks, I’d diversify into other more ‘defensive’ sectors such as consumer staples and healthcare for portfolio protection.

Another takeaway here is that it’s not wise to buy a stock just because it offers a high yield. When investing in stocks for income, it’s a good idea to think about the total returns (capital gains and dividends) a stock can provide.

There’s not much point in picking up a 7% yield from a stock if it has the potential to lose 30% of its value, or more, in the blink of an eye. It’s going to take many years of dividends to make up for that kind of capital loss.

I learned this last lesson the hard way. So now, when I invest in dividend stocks, I tend to go for more stable, defensive companies such as Unilever and Reckitt. These stocks don’t offer high yields like the housebuilders do. However, they also don’t experience the kind of wild share price volatility that housebuilders do.

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Edward Sheldon has positions in Reckitt plc and Unilever. The Motley Fool UK has recommended Reckitt plc and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Woodbois (LSE: WBI) shares have experienced a significant decline recently. Less than six months ago, they were trading near 8p. Today however, they can be picked up for less than 3p.

Is this a good opportunity to buy some shares in the AIM-listed wood and carbon services company for my portfolio? Or is Woodbois stock a risky proposition from here? Let’s take a look.

Is now the time to buy the shares?

Woodbois released a trading update for the third quarter of 2022 last month, and there were definitely some positive takeaways from it.

For the period, the group generated record quarterly revenue of $5.8m, up 29% year on year. This took revenues for the first nine months of the year to a record $17.1m, up 35%. Meanwhile, gross profit margin for the first nine months of the year improved to 24% from 23% in the first half of 2022.

Looking ahead, management was optimistic about the future. “Almost regardless of market conditions we look forward with confidence to further growth in 2023 and beyond,” said CEO Paul Dolan. This kind of confidence from management is encouraging.

Where are the profits?

However, there were also a few issues of concern in the update.

For a start, there was no mention of operating profit, which suggests that the company generated a loss during the quarter. This could explain why the share price fell after the update was posted. In the current economic environment, where there’s a lot of uncertainty, investors want to see profits.

Secondly, the company’s cash balance at the end of September was only $1.4m. That’s low. Cash is the lifeblood of any business. Without it, firms tend to experience operational challenges. Given this small cash balance, Woodbois may need to raise capital. If it did this via an equity raise, its share price would probably fall.

Finally, debt at the end of the quarter was $12.3m. That’s quite high given that Woodbois isn’t generating consistent profits. Especially now that interest rates are rising and debt is becoming more expensive to pay off.

Overall, the update highlighted a number of key risks for me to consider.

This stock could be volatile

Looking beyond the latest trading update, there are some other risks that concern me here.

One is that Woodbois is a very small — micro-cap — company. Currently, its market capitalisation is around £60m. The share prices of companies this size tend to be very volatile. Meanwhile, there can be quite a large trading spread with micro-cap stocks, which increases buying and selling costs.

Another issue is that ex-Chairman Miles Pelham currently owns around 20% of the company’s shares. If he decided to offload the stock, it would most likely put downward pressure on the share price.

My move now

Given the risks here, I’m happy to leave Woodbois shares on my watchlist for now. In my view, there are other growth stocks that offer a better risk/reward proposition at the moment.

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This year, many FTSE 100 stocks have been hit hard. JD Sports Fashion (LSE: JD.) is a good example. Year to date, it’s down about 56%. Now, like many other UK companies, JD is facing some challenges right now. Supply chain issues and the cost-of-living crisis are creating some uncertainty. However, a 56% fall in the share price strikes me as excessive.

Given the huge dip, I’m thinking about buying shares in the retailer. I believe there’s the potential for a sizeable rebound in the share price in the not-too-distant future.

Why I like this FTSE 100 stock

After the big share price fall, JD Sports Fashion shares now look very cheap. Currently, analysts expect the FTSE 100 company to generate earnings per share of 12.6p this financial year, putting the forward-looking price to-earnings ratio at about 7.5 (assuming the earnings forecast is reliable). That valuation strikes me as very low.

This is a company with an excellent track record when it comes to growth. Between FY2017 and FY2022, sales increased from £1.8bn to £6.2bn. And in the first half of this financial year (ended 30 July), sales came in at £4.4bn, up 14% year on year.

It’s also a company that stands to benefit from a number of powerful trends in the years ahead. One such trend is the increasing focus on health and wellness. As a seller of trainers and athleisure, JD is essentially an ‘enabler’ here. Another trend is the ‘casualisation’ of fashion which is, in part, linked to the increasing prevalence of remote work.

Given the company’s track record and the potential for further growth, I think the stock looks like a bit of a steal right now. And I’m not the only one who sees value here. Recently, analysts at Berenberg named this FTSE 100 stock as a ‘top pick’. Meanwhile, analysts at Peel Hunt said that JD’s share price does not reflect the “strength of its global position” and its cash pile.

Risks to consider

Of course, there are a few risks to consider here. I think the main risk right now is consumer spending. If consumers continue to tighten their belts due to high energy and food costs, JD Sports Fashion could be impacted negatively. Having said that, during the Global Financial Crisis of 2008/2009, JD’s revenues held up well.

Another key risk is supply chain challenges. Recently, I went looking for a pair of white Nike Air Force 1 trainers (one of the retailer’s top selling shoes) and no JD Sports stores, or the website, had my size. That’s a worry.

At the same time, excess inventory could be a problem. Recently, both Nike and Adidas have had problems in this space. This could lead to discounting.

Finally, there’s the fact that Peter Cowgill recently left the company. He was instrumental in building JD Sports into the powerhouse that it is today. The new CEO, Régis Schultz, doesn’t have any specialist sporting experience.

My move now

To my mind, however, these risks are baked into the share price and the valuation right now. So I’ve moved the FTSE 100 stock onto my list of shares to buy.

Given the low valuation, I think the stock has the potential to deliver attractive returns in the medium to long term.

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Savings accounts have become far more attractive in recent months. Last week, for example, I received an email from Chase informing me that the interest rate on my saver account will shortly rise from 1.5% to 2.1%. Naturally, I’m pretty happy about this, as it means more interest on my cash savings. Having said that, I won’t be dumping my dividend stocks and moving all my money into high interest accounts. Because with dividend stocks, I can pick up much higher yields.

Dividend stocks offer high yields

Investing in dividend stocks can be a great way to generate long-term passive income. With these stocks, investors receive regular cash payments (out of company profits) for doing absolutely nothing. And the yields can be very attractive. On the London Stock Exchange, there are many stocks that have yields of 4% and higher at present.

Some dividend stocks I own at the moment include Unilever, Tritax Big Box, and Hargreaves Lansdown. These stocks – which are all in the FTSE 350 index – currently offer prospective yields of 3.8%, 5.2%, and 5.5% respectively.

There are plenty of UK stocks that offer even higher yields. For example, British American Tobacco currently offers a yield of about 7%. Meanwhile, Legal & General, which I’ve owned in the past, currently offers a yield of about 8.5%.

It’s worth noting that a lot of dividend-paying companies continually increase their payouts. For example, Legal & General has lifted its payout by nearly 30% over the last five years. This is a major plus to owning these kinds of stocks. They can become real cash cows if they continually increase their dividend distributions.

Given the big yields on offer, and the potential for dividend growth, there’s a lot to like about dividend stocks, in my view. From a passive income point of view, they can be far more effective than savings accounts.

Savings accounts vs dividend stocks

I need to stress however, that there are some big differences between savings accounts and dividend stocks.

Savings accounts are a low-risk investment because I’m guaranteed to get all my money back. So there’s no chance of losing money (ignoring inflation).

Dividend stocks are a riskier investment because my capital is at risk. Stock prices fluctuate constantly. I can lose money if I invest in a company and its share price falls.

Long-term investments

The way I see it though, both can play an important role in my overall portfolio.

Savings accounts are ideal for my short-term savings and my emergency savings. Dividend stocks, on the other hand, are ideal for longer-term savings. They’re suited to money that is not needed in the short term and can be invested for many years.

When it comes to big yields however, dividend stocks are the clear winners. That’s why I won’t be dumping mine any time soon.

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Edward Sheldon has positions in Hargreaves Lansdown, Tritax Big Box REIT, and Unilever. The Motley Fool UK has recommended British American Tobacco, Hargreaves Lansdown, Tritax Big Box REIT, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Imperial Brands (LSE: IMB) is a popular dividend stock and it’s easy to see why. Last financial year, the tobacco giant paid out 139.1p per share in dividends, which translates to a massive yield of 6.8% at today’s share price.

Here, I’m going to look at the Imperial Brands dividend forecast for the years ahead. I’ll also discuss whether I would buy the stock for income today.

Bigger payouta

Before revealing the dividend forecasts, it’s worth highlighting the fact that Imperial Brands’ financial year ends on 30 September. I’ll refer to the year just passed as ‘FY2022’. This year, ending 30 September 2023, is ‘FY2023’.

As for the projected payouts, presently, City analysts expect Imperial Brands to pay out 143p per share for FY2022 and 146p per share for FY2023. So the payouts are expected to be larger than FY2021’s. At the current share price of 2,037p, these estimated payouts equate to yields of 7% and 7.2%. This suggests Imperial Brands could continue to be a cash cow for investors.

It gets better though. You see, Imperial Brands recently launched a substantial share buyback programme. Earlier this month, it said that it plans to repurchase £1bn worth of its own stock between 7 October and 30 September 2023.

Share buybacks don’t benefit investors immediately in the same way that dividends do. However, they are another form of shareholder returns. Buybacks reduce the number of shares on the market, pushing earnings per share up (making a stock more attractive from a fundamental analysis perspective).

Imperial has said that total capital returns in FY2023 are expected to exceed £2.3bn, representing around 13% of the current market capitalisation. In other words, the total yield here (including dividends and share buybacks) for FY2023 could be closer to 13%. That’s impressive.

Are Imperial Brands shares worth buying?

So would I buy Imperial Brands shares for my portfolio today? The answer to that question is no.

There is plenty to like about the stock. For example, I like the fact that the company is quite defensive in nature. In a recession, smokers tend to keep smoking. I also like the stock’s valuation. Currently, IMB has a forward-looking P/E ratio of just seven. So it’s quite cheap.

Another plus is the group’s dividend policy. Right now, Imperial Brands is aiming to grow the dividend annually, taking into account underlying business performance.

What concerns me however, is the lack of top-line growth here. In FY2021, revenue was up just 1.4%. Meanwhile, for the year just passed, Imperial is expecting revenue growth of just 1%. This lack of growth could have implications for dividend growth in the long run.

Another issue for me is regulatory uncertainty. All over the world, governments are cracking down on tobacco companies.

A third concern is debt on the balance sheet. At 31 March, net debt stood at £9.8bn. This is an issue in a rising interest rate environment. Higher interest payments could impact the company’s ability to pay dividends.

Given these issues, I’m happy to pass on Imperial Brands shares for now.

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Naked Wines’ (LSE: WINE) share price spiked yesterday. When the market closed at 4.30pm, shares in the subscription wine business were sitting at 122p – 29% higher than the previous day’s closing price.

So what was behind the huge share price increase? And is the stock – which has tanked over the last year – worth buying for my portfolio today?

What drove the price spike?

The main reason Naked Wines shares surged yesterday was that the company released an operational and financial update and this was received well by the market.

In its update, the company said it has taken steps to reconfigure the business, which has performed poorly of late. Specifically, management said it had:

• Renegotiated its banking facilities to ensure that the company is well funded (it had £64m of available liquidity at the end of September).
• Taken decisive action to focus on profitability (instead of focusing on growth), and reduced marketing investment that was not delivering satisfactory returns.
• Restructured some of the company’s teams to create a leaner and more focused business.

The company believes these steps will lay the foundation for a return to sustained, profitable growth.

In terms of guidance, Naked Wines said it expects adjusted earnings before interest and tax (EBIT) for the six months to the end of September to be around £4m – around three times the year-earlier figure. And for the year ending 28 March 2023, it expects to deliver adjusted EBIT of £9m-£13m, with further improvement expected the following year.

Explosive move higher

As for why the stock’s move to the upside was so explosive, my hunch is that there was a bit of a ‘short squeeze’ here. According to my data provider, around 4.5 million Naked Wines shares were being shorted in the lead up to the update (around 7% of the company’s free float).

Clearly, short sellers – who profit from falling share prices – were expecting the update to be disappointing. However, it was actually not that bad. So short sellers will have scrambled to buy stock to close out their short positions, and this will have pushed the share price up significantly.

Are Naked Wines shares worth buying?

Would I buy Naked Wines shares today? No, as I don’t see them as a good fit for my portfolio.

When I invest in small-cap stocks, I generally go for companies that have an excellent track record when it comes to profitability. I like to see consistent growth in profits and a high return on capital. I’ve found that this dramatically reduces my investment risk.

Looking at Naked Wines, its profitability track record is quite poor. In three out of the last six financial years, it has generated a net loss. And when it has made a profit, its return on capital has been quite low.

Now, as I mentioned above, Naked Wines is focusing its attention on profits. This is a good thing. However, it remains to be seen whether it can put together a solid track record on this front.

So I’m happy to pass on the shares for now. To my mind, there are better stocks to buy for my portfolio today.

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

NIO (NYSE:NIO) stock has taken a massive hit this year. At the start of 2022, shares in the ‘Tesla of China’ were trading above $30. Today however, they can be snapped up for less than $11.

Is this a great buying opportunity for me? Or is NIO stock a risky proposition from here? Let’s discuss.

The NIO growth story

The long-term growth story here is still very much intact. This is illustrated by the fact that in the third quarter of 2022, NIO delivered a record 31,607 vehicles, an increase of 29% year on year. As of 30 September, cumulative deliveries were 249,504 compared to 142,036 at the same stage last year.

What’s exciting is that the electric vehicle (EV) company is currently in the process of launching in a number of European countries, including Germany, the Netherlands, Sweden, and Denmark. In these countries it’s set to offer three vehicles – the ET7, ET5 and EL7. This should give growth a boost.

However, it’s worth noting that NIO plans to operate its business in these countries on a corporate leasing and subscription model. In other words, it will not actually be selling cars. It believes this business model will give it more flexibility. “Flexibility is the new premium,” said CEO William Li in a recent interview.

In light of this growth story, NIO stock could still be a good bet for long-term investors like myself.

Could the share price fall further?

Having said that, there are quite a few risks here that could potentially put pressure on the near-term share price.

One is production challenges, which is an industry-wide issue right now. At the moment, all EV companies are suffering from supply chain issues, battery sourcing problems, higher costs, and logistical issues. Earlier this week, Tesla said it would miss yearly delivery growth targets due to logistical challenges.

Another issue is auto sales growth in China, which appears to be slowing. In September, year on year sales growth was 25.7%, down from 32.1% in August when EV sales grew at a faster rate due to government incentives.

“The recovery trend is far lower than our expectation. The market is overall relatively weak,” commented China Passenger Car Association (CPCA) secretary general Cui Dongshu.

A third issue is competition from rivals. Right now, NIO is facing intense competition from start-ups and established automakers, both in China and Europe. In Europe, for example, its cars are up against the likes of Mercedes’ EQS and BMW‘s i4.

Finally, there’s the fact that the company is losing money. This year, analysts expect NIO to post a net loss of around $1.1bn. That’s not ideal from an investment perspective. In the current environment, unprofitable companies are very much out of favour.

My move now

Given these risks, and the fact that the company’s market-cap is still quite high, at around $19bn, I’m going to leave NIO stock on my watchlist for now.

In my view, there are safer growth stocks to buy for my portfolio today.

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Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.