NIO stock soared 38% last week. Should I buy now?

NIO stock has been soaring recently, climbing over 38% last week. Dylan Hood assesses whether this is a buying opportunity for his portfolio.

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NIO (NYSE: NIO) stock has been super-volatile over the past month. However, things seemed to be going right for the Chinese EV giant last week, as the shares climbed over 38%. This was mainly due to news breaking that China has agreed to cooperate with the US to create more stability for listings overseas.

While this is good news, the shares are trading over 50% lower than this time last year. In addition to this, they’re down over 37% year-to-date, which is pretty bad by any standards. So is now the right time for me to add more NIO stock to my portfolio? Or should I be avoiding this volatile EV stock? Let’s take a look.

Bull case for NIO

NIO is a standout performer when it comes to growth. The firm has consistently delivered high growth in vehicle deliveries in almost every report it has issued in the last few years. In its January delivery update, it highlighted its deliveries had climbed over 33% compared to the previous year, with numbers reaching 9,652. This growth was also seen in its February update, where deliveries rose by 9.9% year-on-year. Broadening the horizon to the whole of 2021, deliveries saw a near 110% rise from 2020 levels.

Headwinds for NIO stock

I see three main headwinds that NIO stock will have to contend with over the next few months:

Firstly, rising inflation has forced central banks across the world to hike interest rates. Just last week, the UK and US raised rates to 0.75% and 0.25%, respectively. When rates rise, people can earn a higher return on their savings and hence steer away from riskier investments such as high-growth stocks. This could turn investors sour on NIO.

Secondly, the business has been struggling in the face of regulatory tensions. China has been clamping down on Chinese companies listed on US exchanges for some time now, and it has been weighing on the NIO valuation big-time. However, this risk seems to have been partially mitigated since NIO issued secondary shares on the Hong Kong Stock Exchange.

Thirdly, NIO has struggled with supply chain shortages for some time now. Semiconductors were in scarce supply even before the pandemic struck, and this shortage has been amplified by pandemic-related supply chain issues. These shortages caused it to suspend production in October 2021, which led to a 65% decline in total deliveries. If this risk persists, it could struggle to keep up its high growth.

What I am doing now

I have been a holder of NIO stock for some time now, and I still have long-term optimism for the firm. However, in the current climate, the shares seem too volatile for my liking. I think in the short-to-medium term there are too many factors pitted against NIO and hence I wouldn’t be surprised if the shares drop lower. Therefore, I won’t be adding more of the stock to my portfolio 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.

Dylan Hood owns shares of NIO Inc. 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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