Is now the time to buy NIO shares?

NIO shares have collapsed by 50% in the last year on fears of being de-listed. But is that all about to change? Zaven Boyrazian investigates.

| More on:
Blue NIO sports car in Oslo showroom

Image source: Sam Robson, The Motley Fool UK

Shares of NIO (NYSE:NIO) surged by over 14% yesterday, despite the company making no major announcements. The stock price of the Chinese electric vehicle manufacturer has had a pretty rough ride over the last 12 months, falling by as much as 50%. So, is this latest jump just a result of general market volatility? Or is there something else going on? Let’s explore.

The growth catalyst of NIO shares

Typically, when a double-digit rise in a share price is seen, it’s usually on the back of some impressive earnings. Yet in the case of NIO, this latest move can be attributed entirely to politics.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

For those who aren’t aware, US and Chinese regulators haven’t exactly been getting along lately. And starting in 2020, an extensive crackdown on Chinese businesses listed on US stock exchanges began. Since then, the US Securities and Exchange Commission has created a growing list of companies at risk of being de-listed in 2024 under the Holding Foreign Companies Accountable Act.

This whole political dispute is undeniably responsible for the poor performance of Chinese stocks over the last two years. And several companies, including NIO, have created a dual listing for their shares on the Hong Kong Stock Exchange to reduce risk. But this may not be necessary after all.

Yesterday, China Vice Premier Liu He made a speech with encouraging comments towards technology executives. And made implications that the crackdown may be on the verge of easing. If genuine, this move undoubtedly gives more freedom and flexibility to these companies while simultaneously potentially appeasing US regulators. As a result, there’s growing speculation that the risk of NIO shares getting de-listed, along with other Chinese stocks, is falling.

So, is now an excellent time to add the EV manufacturer to my portfolio?

Time to buy?

Looking at the latest results, there’s no denying that NIO is seeing a solid performance. Vehicle deliveries in 2021 more than doubled versus the previous year jumping from 43,728 to 91,429. This, combined with some price increases, resulted in revenues surging by 122% to just under $5.4bn.

Meanwhile, improvements in manufacturing efficiency have pushed the gross profit margin to 18.9% versus 11.5% a year before. That’s not sufficient to bring NIO shares into the land of profitability. But at current rates, analysts predict this could change by 2024.

Combining these figures with a valuation that sits at a relatively small price-to-sales (P/S) ratio of 4.1 makes this stock look exceptionally cheap, in my opinion. By comparison, Tesla, its chief competitor, has a P/S of 14.8.

Under normal circumstances, I would be very tempted to add NIO shares to my portfolio today. However, the situation with China remains a big red flag. It may be improving, but in the current state of affairs, nothing is set in stone. And the de-listings may go ahead if an agreement is not reached between the two world leaders. Personally, I won’t buy as I prefer to invest in businesses, not politicians.

More on Investing Articles

Young brown woman delighted with what she sees on her screen
Investing Articles

3 easy actions that could boost my stock market returns

The UK stock market is going through a sticky patch so this Fool is looking for ways to improve his…

Read more »

Hispanic man using laptop in home office and drinking coffee
Investing Articles

Boohoo shares: time for me to admit defeat?

This Fool is nursing heavy losses from his Boohoo Group (LON: BOO) shares. Should he sell up and move on?

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

6% dividend yields! 2 cheap UK shares to buy in July

Harshil Patel considers two cheap UK shares paying fairly high dividends. He'd consider them for his Stocks and Shares ISA.

Read more »

Social media and digital online concept, woman using smartphone
Investing Articles

Will Lloyds shares recover in 2022?

Lloyds shares have struggled this year and the looming recession won't help. But I'd still buy them today.

Read more »

Two hands holding champagne glasses toasting each other with Paris in the background
Investing Articles

Can the stock market make me rich even now?

Here are three ways I'm coping with the stock market's recent bout of weakness and aiming to build wealth in…

Read more »

Cogs turning against each other
Investing Articles

3 top investment trusts to buy right now

Investment trusts offer a wide range of options for investors. And in troubled times, they provide some safety through diversification…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Why hasn’t the FTSE 100 crashed in 2022?

The catastrophic events of 2022 have left investors around the globe fearing the worst for stock markets. And some have…

Read more »

Trader on video call from his home office
Investing Articles

2 inflation-resistant FTSE 100 stocks to buy today

Soaring inflation could dent my returns if I don't take care. Here are two top inflation-resistant FTSE 100 stocks I'd…

Read more »