Down 25% this year, is NIO stock a buy?

Shares in Chinese electric vehicle manufacturer NIO have fallen a long way in 2022. Edward Sheldon looks at whether this is a buying opportunity.

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Shares in Chinese electric vehicle (EV) manufacturer NIO (NASDAQ:NIO), which are listed in the US, have had a very poor run recently. This year, NIO’s share price has fallen 25%. Meanwhile, over the last 12 months, it has fallen nearly 60%.

When I last covered NIO stock, near the $40 mark, I had concerns about the valuation. But after the recent share price fall, the valuation is a lot lower. Is now the time to buy NIO for my portfolio? Let’s take a look.

Is it time to buy?

While NIO’s share price has taken a big hit recently, the growth story here still appears to be intact. In 2021, for example, the firm delivered 91,429 vehicles. That represented growth of 109.1% year on year. Meanwhile, the group’s January 2022 update showed that it delivered 9,652 vehicles last month. That represented growth of 33.6% year on year.

It’s worth pointing out, however, that growth has slowed considerably recently. If we go back to the January update from last year, it saw growth of 352% year on the year for the quarter. This slowdown is something to keep in mind.

Is NIO stock cheap?

As for the valuation, this doesn’t look so excessive anymore.

NIO doesn’t have a price-to-earnings (P/E) ratio as it doesn’t have any earnings yet. But it does have a price-to-sales (P/S) ratio and that’s a little under four on a forward-looking basis. That actually seems quite reasonable to me.

To put that number in perspective, Tesla, Rivian, and Lucid, have P/S ratios of around 11, 17, and 22, respectively. So, on a relative basis, NIO stock actually appears to offer some value right now, in my view.

Risks to consider

There are risks to consider here though.

I still think competition from rivals is a major risk. What many people don’t realise is that there are a lot of EV manufacturers operating in China today including BYD, Xpeng, SAIC Motor, Ford, Tesla, and Porsche. So, there’s no guarantee that NIO will be a big player in the Chinese EV market. 

It’s worth noting that the average selling price of a NIO vehicle is currently about $70,000. This means a lot of Chinese consumers won’t be able to afford its EVs for now.

Could the regulators come for it?

Another issue is regulatory risk. Recently, Chinese regulators have been cracking down on companies listed in the US. As a result of pressure from regulators, Didi Global – which is seen as the ‘Uber of China’ – recently announced that it would be delisting from the US market. Could the same thing happen to NIO? We can’t rule it out.

Better stocks to buy

Given the risks here, I’m going to keep NIO on my watchlist. I do think there’s some value on offer at the moment. However, given the risks, it doesn’t make my ‘best stocks to buy’ list right now.

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 recommended Tesla. 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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