In the article for Chinese EV carmaker NIO published in December, the points in favour of the company (as opposed to the U.S.-listed stock) included high operational achievements via its joint venture, leadership’s clearly-defined and ambitious plans for growth as well as its steady focus in building out infrastructure for its offering.
What merited an advisory was the threat of delisting in light of growing regulatory pressure, with an advisory to investors with access to Eastern exchanges to keep an eye for the company’s IPO over there. Since then, the company has gone on to successfully list in both the Hong Kong Stock Exchange (HKSE) as well as the Singapore Stock Exchange (SGX) four days ago. The SGX listing offers a layer of ease for investors averse to the HKSE as well as ease of access to investors in the prosperous ASEAN belt.
However, given the economic scenario as well as the company’s performance, the overall outlook for the company would do well with a nuanced consideration.
Fiscal and Ratio Trends
The company’s most recent earnings release was the annual report at the end of April this year, which provides an excellent foundation for trend studies:
The study of trends reveal:
While growth in revenue holds steady year-on-year, growth in total cost of sales and operating expenses have relatively increased.
While gross profit – signifying earning efficiency from the production and sale of goods and services – has surged spectacularly, net income – signifying overall profitability – continues to be depressed (albeit improving).
An interesting pattern in recent commentary regarding the company’s offering has been its positioning versus Tesla, Inc (TSLA): various publications have indicated that NIO could be a “Tesla Killer”. Be that as it may, a comparison versus Tesla isn’t completely ridiculous: in China (and over the new few years in Western Europe), both companies’ products have significant overlap in terms of addressable consumer segment.
A ratio analysis of both companies’ stock performance, however, don’t show any significant disparities beyond a general “ratio cool-off” since the end of 2021:
Now, data providers typically don’t furnish ratios that are too high or too low on account of such information being meaningless in terms of actionable insight. This is certainly true for NIO’s PE Ratio (PE). In the Price to Sales (PS) and Price to Book (PB) Ratios, both instruments show roughly analogous drops.
However, not all sources decline to furnish data on “meaningless” ratios. For instance, Zacks’ shows that – unlike with Tesla – the company has had highly adverse PE valuations (which continues to be so).
Given that prices can never be negative, this indicates that the company has witnessed a significant rally in prices even during its low-earning periods. This isn’t surprising, given the trends seen in 2019 through 2021 – a highly overvalued equity market in the U.S..
Another investment tracking service has an eclectic selection of companies that it considers to be comparators for NIO, albeit with slightly different terminology. Relative to this selection, the company’s PE Ratio is listed as being “at loss” – similar to other “pure-play” EV newcomers Lucid and Rivian:
As mentioned in the previous article about Nio, given that the company had announced a new brand for mass-market EVs in its Q2 update to compete with VW and Toyota in China, it can be expected that the company’s expenses will continue to impose a strain on its profitability. In fact, consensus estimates – as per Nasdaq – indicates that this ratio will likely worsen all the way through 2023 followed by a very sharp turnaround by the end of 2024:
Given the facts presented and strong industry consensus, NIO shows strong potential to be a “growth stock” with a two-year horizon. The company’s offering is attractive and its breadth of addressable consumer segments is likely to improve with the inclusion of a “mass-market” EV roster. The quest for the latter, however, will weigh down profitability for the next few years given the capital-intensive investments necessary in this industry but there’s no indication at present that that the company will fail in its endeavour. It bears noting that competition in its primary market – the People’s Republic of China – will be cut-throat, to say the least.
As highlighted in the article on the biotech sector, current times aren’t very conducive for ever-rising price trajectories in growth stocks. Thus, this stock would likely be quite attractive to those investors who are willing to wait a couple of years to see a substantial and sustained positive portfolio impact.
Currently, there are some indication that the stock is undergoing price discovery – albeit with a somewhat declining trajectory due to its “growth stock” status. For European investors, there are a number of leveraged/leveraged inverse exchange-traded products (ETPs) based on the company’s stock that capitalize on the current price discovery patterns. It bears noting, however, that investment into ETPs require both discipline and active management: inter-day price trajectories determine the payoff structure as well as the risk profile.
Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.
Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.
Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.
Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.
Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.
For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.
Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.
Prior to joining LS, Violeta worked at several high-profile investment firms in Australia, such as Tollhurst and Morgans Financial where she spent the past 12 years of her career.
Violeta is a certified market technician from the Australian Technical Analysts Association and holds a Post Graduate Diploma of Applied Finance and Investment from Kaplan Professional (FINSIA), Australia, where she was a lecturer for a number of years.
Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.
He joined Leverage Shares from UniCredit, where he was a corporate relationship manager for multinationals. His previous experience is in corporate finance and fund administration at firms like IBM Bulgaria and DeGiro / FundShare.
Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.
Terms and Conditions
If you are not classified as an institutional investor, you will be categorised as a private/retail investor. At this time, we cannot send communications directly to private/retail investors. You are welcome to view the contents of this website.
If you are an ‘Institutional investor’, you affirm either that you are a Per Se Professional Client, or that you wish to be treated as an Eligible Counterparty Client, both as defined under the Markets in Financial Instruments Directive, or an equivalent in a jurisdiction outside the European Economic Area.
The value of an investment in ETPs may go down as well as up and past performance is not a reliable indicator of future performance. Trading in ETPs may not be suitable for all types of investor as they carry a high degree of risk. You may lose all of your initial investment. Only speculate with money you can afford to lose. Changes in exchange rates may also cause your investment to go up or down in value. Tax laws may be subject to change. Please ensure that you fully understand the risks involved. If in any doubt, please seek independent financial advice. Investors should refer to the section entitled “Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in the securities offered by the Issuer.
This website is provided for your general information only and does not constitute investment advice or an offer to sell or the solicitation of an offer to buy any investment.
Nothing on this website is advice on the merits of any product or investment, nothing constitutes investment, legal, tax or any other advice nor is it to be relied on in making an investment decision. Prospective investors should obtain independent investment advice and inform themselves as to applicable legal requirements, exchange control regulations and taxes in their jurisdiction.
This website complies with the regulatory requirements of the United Kingdom. There may be laws in your country of nationality or residence or in the country from which you access this website which restrict the extent to which the website may be made available to you.
United States Visitors
The information provided on this site is not directed to any United States person or any person in the United States, any state thereof, or any of its territories or possessions.
Persons accessing this website in the European Economic Area
Access to this site is restricted to Non-U.S. Persons outside the United States within the meaning of Regulation S under the U.S. Securities Act of 1933, as amended (the “Securities Act”). Each person accessing this site, by so doing, acknowledges that: (1) it is not a U.S. person (within the meaning of Regulation S under the Securities Act) and is located outside the U.S. (within the meaning of Regulation S under the Securities Act); and (2) any securities described herein (A) have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction and (B) may not be offered, sold, pledged or otherwise transferred except to persons outside the U.S. in accordance with Regulation S under the Securities Act pursuant to the terms of such securities. None of the funds on this website are registered under the United States Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Exclusion of Liability
Certain documents made available on the website have been prepared and issued by persons other than Leverage Shares Management Company. This includes any Prospectus document. Leverage Shares Management Company is not responsible in any way for the content of any such document. Except in those cases, the information on the website has been given in good faith and every effort has been made to ensure its accuracy. Nevertheless, Leverage Shares Management Company shall not be responsible for loss occasioned as a result of reliance placed on any part of the website and it makes no guarantee as to the accuracy of any information or content on the website. The description of any ETP Security referred to in this website is a general one. The terms and conditions applicable to investors will be set out in the Prospectus, available on the website and should be read prior to making any investment.
Leverage Shares exchange-traded products (ETPs) provide leveraged exposure and are only suitable for experienced investors with knowledge of the risks and potential benefits of leveraged investment strategies.
This website is maintained by Leverage Shares Management Company, which is a limited liability company and is incorporated in Ireland with registered offices at 2 Grand Canal Square, Grand Canal Harbour, Dublin 2.
By clicking you agree to the Terms and Conditions displayed.