Shares of a premium Chinese electric vehicle manufacturer Nio (NYSE:NIO) slipped on Tuesday after the company reported mixed numbers from the fourth quarter that failed to impress investors. NIO shares fell about 12% in response.
This immersion is a great opportunity to buy.
Currently, NIO delivery numbers are slightly disrupted due to one-off noise, including China’s Lunar New Year’s holiday and the shortage of semiconductor chips as a result of the Covid-19 pandemic. However, this noise will pass.
Meanwhile, the main fundamental trends of the NIO remain very strong. This allows the company to scale supply and production, expand globally, maintain high average sales prices and increase revenue and profit margins.
Due to their strong fundamentals, NIO shares are likely to test their last levels around $ 45 twice, maintain that level and then return to $ 70.
Net, buy immersion in NIO!
Here’s a deeper look:
Earnings from NIO shares look good
Shares of NIO fell 10% after the company reported gains for Q4. Why? Because the deliveries failed to impress.
Deliveries in February fell by 23% on a monthly basis, after a multi-month period of successive profits. Then, to make matters worse, management said during the conference that production would have to reach 7,500 vehicles per month in the second quarter of 2020 – compared to what was supposed to be 10,000 vehicles per month. , declining due to a global shortage of semiconductor chips.
This is not great news.
But that’s the thing: They are a temporary headwind.
The drop in deliveries in February is due to the Chinese lunar New Year’s holiday during the month, during which consumers tend to hold back purchases of large tickets. This holiday is over. Deliveries will return to ramp mode in March.
Meanwhile, the shortage of chips has a longer impact here. But not for so long. Factories around the world are now returning to full production. By the summer, this chip shortage will be old news. NIO’s production volume will drop to 10,000 vehicles per month by the beginning of Q3.
So the bad news in the NIO’s income statement is entirely short-lived. In the meantime, there were many good things. Average sales prices have risen, indicating that demand (excluding discounts) is leading to growth. Vehicle margins increase by three points in a row. Gross margin increased by four points. The adjusted loss narrowed. European expansion remains on the way. ET7 reservations exceeded expectations.
In general, this business is still firing on all cylinders, except for a few short-term winds that will pass.
Watch Double Dip
As the main fundamental business trends remain favorable, this decline in NIO stocks will be short-lived.
I’m looking for shares of NIO to go back and test our lowest level of $ 44, which reached last week amid growing fears. This will be a double immersion test. If NIO shares pass this test – and maintain their lowest levels – this is a pretty strong sign that the recent sell-off in NIO shares is coming to an end.
I suspect that NIO stocks will pass this “double immersion” test. This is because rates have calmed down, while the NIO’s revenue report emphasizes that businesses are still firing at all cylinders today.
To that end, I see this sell-off in NIO shares as in the ninth inning. It will end. Coming soon. And at prices not much lower than those traded today.
NIO stock up to $ 70?
As a result of the company’s income statement, I’m actually revising my NIO forecasts higher, despite the decline in NIO inventories.
This is because I was impressed by several things in the report.
First, the successive drop of 23% in deliveries in February is actually impressive. Two years ago, deliveries fell by 56% per month in February. Then, given that the decline of 23% is actually very stable.
Second, ASPs are strong. They reached about $ 58,000 for the quarter. This is 18% more than the previous year and 7% more than the quarter. As a result of this strength of ASP, I am reviewing my higher long-term ASP goals.
Third, margins outperform expectations. Vehicles and gross margin jumped more than 15% during the quarter. They close quickly by 20% – and the NIO is far from the scale. In the long run, I think that the gross margin may increase until the upper 20s.
Therefore, my modeling now assumes that the NIO will make about $ 6 earnings per share by 2030. Based on a multiple of 25X earnings and a 10% annual discount rate, which assumes a 2021 target price for NIO shares of $ 70 .
I think this is where the stock will grow once it reaches a bottom of about $ 44.
Bottom line of NIO Stock
The NIO revenue statement was affected by short-term crosswinds. These headwinds will pass. When they do, the company’s long-term backwinds – strong demand, healthy ASP, launch of new cars, global expansion, etc. – will return to focus and direct NIO stocks to new highs.
As a result, I still see NIO shares as one of the biggest growth stocks being bought today.
But this is not the best growth stocks to buy today.
Instead, the best growth to buy today is a company that reminds me of being young Amazon (NASDAQ:AMZN). In fact, I think buying these shares today could be like buying AMZN shares back in 1997 – before they jumped thousands of percent.
Which stocks am I talking about?
Press here to watch my first of its kind Exponential summit to find out the name, marking symbol and key business details of this potential 10X stock selection.
As of the date of publication, Luke Lango did not have (either directly or indirectly) positions in the securities mentioned in this article.
With the discovery of early investment in the super-growth industries, Luke Lango puts you on the ground floor of the world’s changing megatrends. Thus, his Daily 10X Report averages up to a ridiculous 100% return for all recommendations from the launch in May. Press here let’s see how he does it.