NIO shares hit $20: should I buy now?

NIO shares slumped a whopping 16% last week. Dylan Hood takes a closer look at why, and if this is a buying opportunity for his portfolio.

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Blue NIO sports car in Oslo showroom

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NIO (NYSE: NIO) shares have had a bumpy ride over the past few months. In fact, just last week they fell over 16%, finishing the week at a little above $20. For context, this time last year they were trading around the $50 mark. Although the situation looks bleak, I do think there is some long-term value in NIO stock. However, would I buy it today? Let’s take a closer look.

Encouraging fundamentals

The primary reason I see value in NIO stock is its high growth. In its January delivery update, the firm announced it had delivered 9,652 vehicles, up 33.6% from the year before. What’s more, total deliveries for 2021 were up over 109% from 2020. The high growth that the firm has been able to sustain really fills me with confidence. If this trajectory is kept up, I think NIO will inevitably rise in the future.

NIO shares are currently trading with of a price-to-book (P/B) ratio of 9.6 and a price-to-sales (P/S) ratio of 6.8. For comparison, industry leader Tesla’s P/B ratio is 29 and its P/S is 17. To me this highlights the value of NIO at current, especially considering its high year-on-year growth. The firm is set to release its fourth-quarter results on March 7. If it contains more high growth metrics, I expect the shares to jump upward.

Headwinds for the shares

Perhaps the most pressing concern NIO is facing is the Russia-Ukraine conflict, and the uncertainty this has created across the globe. Events like this have a wide-reaching impact on investor sentiment and so produce volatile markets. This is the last thing the NIO share price needs right now.

The state of the broader macroeconomy also seems to be against it. Higher government spending coupled with supply shortages — both induced by the pandemic — have led to rising inflation around the globe. The way that central banks tackle this is by hiking their interest rates. As a general rule, when rates rise, stocks take a hit. High-growth stocks like NIO are often hit the hardest. Needless to say, this is bad news for the Chinese EV manufacturer.

A final risk I see for the shares is the heavily competitive EV landscape. Well-established firms such as General Motors and Ford have set aside billions in R&D for EV production over the next couple of years. In addition to this, competitors such as Li Auto and Xpeng more than doubled their sales in January, highlighting the high growth of NIO’s competition.

The Verdict

Overall, I think NIO shares do offer me the chance for long-term growth. However, there are some serious short-term headwinds the firm is yet to overcome. Although I have owned NIO shares for some time now, I would like to wait until at least the March results are released before considering adding more shares to my portfolio.

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.

Dylan Hood owns shares in NIO Inc. 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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