Should I buy NIO stock while it’s under $40?

While shares in Tesla and Lucid have surged this year, NIO’s share price has fallen. Edward Sheldon looks at whether this is a buying a opportunity?

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NIO (NYSE: NIO) shares have underperformed in 2021. While other electric vehicle (EV) stocks such as Tesla and Lucid have ripped higher this year, NIO’s share price has actually gone backwards, currently trading under $40.

Has this share price weakness created a buying opportunity for me? Let’s take a look.

NIO: latest results

NIO’s recent results, for the third quarter of 2021, showed that the Chinese EV maker continues to grow rapidly.

For the quarter, the company delivered 24,439 vehicles, which represented an increase of 100% from the third quarter of 2020. Meanwhile, it generated total revenue of RMB 9,805m (US $1,522m), which represented an increase of 117% year-on-year. Encouragingly, gross profit came in at RMB 1,993m (US $309m), an increase of 240 % from Q3 2020.

Our demand continues to be strong and our new orders reached a new record high in October,” commented founder, chairman, and CEO William Bin Li.

It’s worth pointing out that the results weren’t perfect. On the downside, the net loss attributable to NIO’s ordinary shareholders for the quarter blew out to RMB 2,859m (US $444m), representing an increase of 141% from the third quarter of 2020.

Meanwhile, the group advised that deliveries in October were down 27.5% year-on-year, due to restructuring of manufacturing lines and supply chain challenges.

Overall, however, the results showed the company is heading in the right direction, in my opinion, although the October delivery numbers were a little bit concerning.

Of course, the NIO story is more about the long-term growth potential than quarterly results. China is the largest EV market in the world so NIO could have significant growth potential from here. According to S&P Global, EV sales in China could hit 6m by 2025, up from 1.8m this year. That kind of industry growth could provide huge tailwinds for NIO in the long run.

Should I buy NIO stock now?

While there’s no doubt that NIO has a long growth runway ahead of it, I do have a few concerns in relation to the stock.

One is the valuation, which is still high, even after the recent share price weakness. At present, NIO has a market-cap of around $62bn. To put that in perspective, Ford – which sold around 100 times the number of cars NIO sold in 2020 – has a market-cap of $77bn.

Another concern is the intense competition NIO is likely to face in the years ahead. One company I think NIO needs to be concerned about is Warren Buffett-backed BYD. It’s having a lot of success right now and, in October, sold 80,003 New Energy Vehicles. This figure was up 263% year-on-year.

Another Chinese EV company that’s seeing strong growth right now is Xpeng. Its October deliveries surged 233% year-on-year to 10,138 EVs. Clearly, these companies have more momentum than NIO at the moment, which struggled in October.  

Given the level of competition here, I’m going to leave NIO on my watchlist for now. All things considered, I think there are better growth stocks to buy today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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