Over the past year, electric car manufacturer NIO (NYSE:NIO) has experienced a lot. From supply chain disruption to investor concern around electric vehicle (EV) sector valuations, NIO shares have been volatile. So looking back over this time period, would I currently be in profit if I’d bought £1,000 worth of the shares a year ago? Should I be considering buying now?
A difficult year for NIO shares
Firstly, let’s run the numbers. At this time last year, NIO shares closed at $54.43. Using the current price of $24.72, I can see that I’d have lost money over this period. My £1,000 would be worth £454, an unrealized percentage loss of 54.6%.
Before I discount this as a viable investment, I need to better understand the reasons behind this move. In my opinion, I can group them into more broader sentiment-driven reasons and then company-specific reasons.
Firstly, sentiment. Last year, relations between the US and China became more strained, particularly when it came down to corporate activities. One example that was flagged up was the cab riding app Didi, that delisted from the US due to pressure from the Chinese authorities. Even the e-commerce giant Tencent faced pressure from local authorities about the way it does business abroad. For NIO, this negative sentiment likely contributed to investors deciding there was too much risk in holding the shares.
Sentiment was also at play at the end of last year, when we saw a broader sell-off in the EV sector and growth stocks in general. Even though some valuations looked high (I’ve been a long time Tesla critic), NIO got caught up in this move despite already being down on the year.
For company-specific factors, the company was also been hit by supply chain disruption. As an example, such problems caused a 65% reduction in month-on-month car deliveries for October.
Finding value at the moment
Despite the bad news mentioned above, I think there’s a lot of reasons to like NIO shares at the moment. At a broad level, I’m able to buy now at a heavy discount to where it was trading a year ago. I think there is a lot of pessimism priced in going forward that I don’t think is completely fair.
For example, the situation between the US and China has cooled off over the past month, as the focus is now on Russia. In terms of growth stock valuations, the correction in the NASDAQ index in January is behind us. While it’s still uncertain as to the longer-term direction, I think it’s fair to say value is appearing in certain areas.
Fundamentally, NIO is also performing very well. The latest quarterly results from November showed that car deliveries in Q3 were up 100% on the same quarter last year, and also up 11.6% on Q2 2021. This helped to boost revenues by 116.6% year-on-year. The CEO noted, “Our demand continues to be strong and our new orders reached a new record high in October”.
On this basis, even though NIO shares would have lost me money over the previous year, I’m considering buying some now.
