NIO stock might be in reverse if even a slight amount of disappointment occurs
Nio stock (NIO) is back above $20/share following analyst upgrades
Despite this renewed bullishness shares in China’s EV maker could easily return these gains.
There is a risk that Nio will not deliver as expected, so you might be hesitant to follow this rally.
Despite mixed quarterly earnings, Nio’s (NYSE:NIO stock) has been steadily rising following the September 7 earnings release. This was due to a spate analyst upgrades of shares in China’s electric vehicle (EV), maker.
Confidence in the company’s production increase is increasing again. It will cause a large jump in sales for 2022 and 2023. However, you should not jump in to chase the recent rally. It isn’t likely that the quarter ahead will live upto your higher hopes.
However, the ramp-up may not yield results that are in line with expectations. This could lead to the stock losing recent gains. Nio’s projected global expansion could fall short of what investors expected long term. Given the high price of growth, it might not take much to see today’s renewed bullishness reverse.
NIO Stock is Surging After Earnings
Nio may be ahead in revenue for quarter two, but it was not enough to be proud of. As expected China’s pandemic closures continued to slow down growth, year-over, and particularly, sequentially.
Even worse, EV maker reported a higher than expected net loss. Net losses per share rose by 316.4% in comparison to the preceding year’s quarter. The market did not react negatively to Q2 results. Instead, it focused on the outlook for Q3, which requires a speeding up of growth.
NIO stock saw a small increase after earnings. Analyst upgrades however sent shares flying. InvestorPlace’s Eddie Pan reported Sep 12. Two analysts (Deutsche Bank’s Edison Yu and BofA’s Ming Hsun Lee), reiterated their “buy” ratings, and have increased their price targets.
Both analysts are optimistic that deliveries will pick up significantly in the fourth quarter. This is due to a combination production ramp-up plus Nio’s launch of new car models. Although the stock price has risen, it is possible that the situation will not improve to the same extent.
How the Latest Uptick could Reverse
NIO stock has been buzzing lately, so it might seem now is the time to make a purchase. It appears that the latest surge is likely to be short-lived. The market now considers a possible acceleration in growth to be a near-certainty, as it has moved above $20 per shared.
Nio should be able to meet its Q3 deliveries target and also hit the Q4 numbers expected by the sell side in order to maintain a higher stock price. Reaching the Q3 target might be possible. Since June, the company has shipped more than 10,000 boxes per month. Q4 may, however, be a much larger order.
Nio must deliver 57,000 vehicles between November and December to meet Edison Yu’s 2022 estimated. This is almost twice the expected Q3 delivery.
This may sound like an easy way to make money with Chinese government incentives, increased production, and new models. However, China’s current economic slowdown and other factors could make this seem less appealing.
The result is that delivery numbers in the months ahead may fall short of expectations. Even if the delivery is not perfect, it could mean that stock prices drop and cause stocks to lose their gains.
The Verdict about NIO Stock
My Portfolio Grader gave Nio stock a D rating. While shares might pull back in a short term, they could still perform poorly in coming years. Long-term bulls think high growth will continue. They are positive that international expansion will keep the country in high-growth mode, even as its domestic growth slows.
It is only time that will determine if its first major expansion abroad (in Europe). It may be subject to greater competition in China. It will face not only competition from Tesla (NASDAQ TSLA), but also existing luxury brands in Europe.
It is possible that it will abandon its North American expansion plans due to failure in Europe. Nio’s current valuation will be unsustainable without global expansion.
There is a risk that NIO will not deliver as expected in the coming quarter so you may decide to stay away from the NIO stock rally.