After falling over 75%, can NIO stock double in value?

NIO stock has sunk around 75% from its all-time high last year. But with the EV maker still achieving strong growth, can it surge again?

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Blue NIO sports car in Oslo showroom

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Due to inflationary pressures and interest rate rises, growth stocks have been battered recently. NIO (NYSE: NIO) stock has not been an exception. Indeed, since its highs of $62 at the start of 2021, the NIO share price has since fallen back to under $15. This is a 76% decrease, cementing the EV maker as one of the worst-performing stocks around. Over the past 12 months, it has sunk nearly 60%. But the company’s growth prospects remain intact, and compared to Tesla, NIO trades at very low multiples. So, after the recent fall, can NIO stock double in value?

Reasons for the recent fall

There are many reasons why NIO has underperformed the US markets recently, mainly linked to its connections to China. 

Firstly, China is currently seeing a surge in coronavirus cases, which has led to a very strict lockdown in Shanghai. There are also fears that a similarly strict lockdown will be imposed in Beijing. The resulting supply chain disruption forced NIO to suspend production of its cars at the start of April. Unfortunately, this means that the company’s production levels may be lower than expected for the year. This could have a negative effect on annual revenues. However, I see this as a short-term problem, which should not have a long-term effect on the NIO share price. 

Secondly, and more importantly, there’s the realistic threat that NIO may have its shares delisted from the US exchange. This is because, like many other Chinese stocks, it doesn’t meet specific accounting criteria for foreign stocks. As such, the firm has been placed on the SEC’s list of potential companies that require delisting, and this saw the stock sink around 15% on Thursday last week. However, the EV maker already has a listing in Hong Kong, and has announced plans for a third listing in Singapore. Although these are smaller exchanges than the US, they should help NIO mitigate the impact. Further, after its recent fall, I feel the delisting threat is now priced in. 

Can NIO stock rise 100%?

It’s an incredible feat for any stock to double in value, yet I feel that NIO could manage it. Indeed, after its recent fall, NIO trades at very low valuations compared to the past. This includes a price-to-sales ratio of around 4, compared to previous P/S ratios of over 20 in 2020. While this reflects the company’s slower growth and China worries, it’s also a signal that NIO is too cheap now. If the stock doubled in value, it would still only be priced at $30, which is still a 50% decrease from its all-time high. 

Further, Tesla has a P/S ratio of around 16, despite revenue growth being no larger than NIO’s. Unlike Tesla, NIO also has several new models coming to the market, which may enable to firm to grow revenues at a quicker pace in the next couple of years. It must be recognised that Tesla is profitable however, and NIO doesn’t expect profitability until 2024. But based on revenue growth alone, this comparison indicates that NIO stock could double in value of things for right for it. Therefore, despite the risks, this is a company I may add 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.

Stuart Blair 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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