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.
Violeta è entrata a far parte di Leverage Shares nel settembre 2022. È responsabile dello svolgimento di analisi tecniche e ricerche macroeconomiche ed azionarie, fornendo pregiate informazioni per aiutare a definire le strategie di investimento per i clienti.
Prima di cominciare con LS, Violeta ha lavorato presso diverse società di investimento di alto profilo in Australia, come Tollhurst e Morgans Financial, dove ha trascorso gli ultimi 12 anni della sua carriera.
Violeta è un tecnico di mercato certificato dall’Australian Technical Analysts Association e ha conseguito un diploma post-laurea in finanza applicata e investimenti presso Kaplan Professional (FINSIA), Australia, dove è stata docente per diversi anni.
Julian è entrato a far parte di Leverage Shares nel 2018 come parte della prima espansione della società in Europa orientale. È responsabile della progettazione di strategie di marketing e della promozione della notorietà del marchio.
Oktay è entrato a far parte di Leverage Shares alla fine del 2019. È responsabile della crescita aziendale, mantenendo relazioni chiave e sviluppando attività di vendita nei mercati di lingua inglese.
È entrato in LS da UniCredit, dove è stato responsabile delle relazioni aziendali per le multinazionali. La sua precedente esperienza è in finanza aziendale e amministrazione di fondi in società come IBM Bulgaria e DeGiro / FundShare.
Oktay ha conseguito una laurea in Finanza e contabilità ed un certificato post-laurea in Imprenditoria presso il Babson College. Ha ottenuto anche la certificazione CFA.