For electric vehicle sector fanboys, Nio (NYSE:NIO) has become the darling you date in large part based on its potential and looks as opposed to staying power and substance. Nio stock has enjoyed quite the rally in 2020, up an astronomical 1,650% year over year.
Electrifying? Ha, ha, ha: BAD PUN. And not necessarily accurate. Electrocuting the competition sounds more like it. Even Tesla (NASDAQ:TSLA) is up a measly 729% by comparison.
Or maybe not. Questions remain as to whether the remarkable growth of Nio stock can continue, though certainly the events of the last few days will make investors feel like they’ve hit battery-powered pay dirt.
On Dec. 10, the company filed with the New York Stock Exchange to sell 60 million new shares of Nio stock, with the option to add up to 9 million more if if demand was strong.
They added 8 million, bringing the total capital raise up to about $3 billion.
So Nio has the momentum, the money and the mojo. But what does this mean, really, when the Shanghai-based manufacturer faces stiff competition at home, from none other than Tesla itself and its Model 3? Will the real Tesla of China please stand up? Or is it enough for Nio to be the Nio of China, rivals be damned?
Nio Stock in Reset Mode
Had the recent offering happened just a week before, the EV company would’ve been looking at a lot more money. On Nov. 23, Nio stock hit an all-time high of $55.38 per share, 26% more than what the new shares fetched. But as slumps go, this one wasn’t even worthy of the metaphor “flat tire.”
In fact, Nio now has a market capitalization of $82.2 billion, according to the Wall Street Journal. Remarkable as it sounds, Ford (NYSE:F) has less than half the market value at $35.6 billion. Now there’s a promising start for a Wall Street Dad joke: How many Fords can you fit into a Nio? (I spent 30 minutes trying to think of a punchline and ran aground. But I refuse to give up, as Dad jokes are how eye roll.)
Given that kind of strength, you wouldn’t be surprised to see some Mustang drivers trying to hide their Nio stock certificates in the glove compartment. But wait a minute. Ford’s losses per share stand at 4 cents — and Nio’s at 94. Is this some sorta electric car crash waiting to happen?
Analysts Love It
Here’s another more-than-two-for-one for ya: Nine analysts consider Nio stock a buy, while four call it hold. The remaining two, perhaps the commonsense pair in the bunch, call it a sell. Those holdouts, based on the time-honored principle of value pricing and a road-tested track record, would have little trouble defending their stance.
But here’s the thing. The EV sector runs as hot as any on the market today. Perhaps if I were smarter, I’d announce the intention to start such a company and on that alone raise a zillion dollars in about 30 minutes. The Vegas-baby-Vegas speculators and Robinhood lemmings have taken over the asylum that is Wall Street, and you can rattle off a bunch of companies that haven’t produced a single vehicle and yet made investors ridiculously wealthy.
There is of course no staying power in this. What’s more, Nio stock represents an investment in eco-friendly technology that has — gasp! — actual vehicles to show for it. Getting from the drawing board to the dealership helped Tesla hang on after five fiscal years of losses.
And Away We Go with Nio
So as the passenger once said to the driver, “Where to next?” Nio’s future depends in large part on whether it can turn those new investor dollars into increased sales volume. Nio’s next quarterly report, not expected until March 2021, will prove a watershed moment.
The Street may give Nio a pass, perhaps even a big one, if its struggles mirror what’s happening across the EV sector. This much I know: A new president who actually believes that climate change is real will do much to spur enthusiasm and federal support for this mode of transport.
Hype chasers want a quick buck; smart investors learn to see the longer-range potential. There’s a significant chance Nio stock will experience a mini-crash in the spring. Chinese government support and new share offerings can only inject steroids into the company so many times.
That said, I remain bullish on Nio. This company sits on an entirely untapped market in America and while it has no definitive plans to come here yet, it does possess a Silicon Valley office. Pulling the trigger on such a move to sell cars here could open up a flood of possibilities for the company — and make it, should things play out right, the one and only Nio of America.
— Lou Carlozo
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Source: Investor Place