NIO (NYSE:NIO) stock may be down 51% over the past 12 months, but has performed well in the past week and is up 21%. Despite the recent gains, I’m still backing the Chinese automaker to rise further. In fact, it’s my top EV stock pick. Here’s why.
NIO is yet to make a profit. The company actually doesn’t forecast turning a profit until 2024. There’s also a possibility that profitability might be pushed back by the lockdowns and zero-tolerance to Covid-19 that we’re seeing in China right now.
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But price-to-earnings isn’t the only metric for valuation. The price-to-sales (P/S) ratio is calculated by dividing the market cap by the total sales or revenue over the past 12 months. Currently, NIO has a market cap of $25.7bn and achieved $5.6bn in revenue in 2021. This gives it a P/S ratio of 4.5. I think that looks like good value.
Here’s how it stacks up against other EV companies.
The table highlights that NIO and Chinese counterpart Li Auto have considerably lower P/S ratios, suggesting they represent better value for money that their US peers Tesla, Rivian and Lucid.
In fact, it’s worth noting that Rivian and Lucid have market caps that are very similar to that of NIO. However, neither company is yet to deliver sales revenue anywhere near that of the Shanghai manufacturer.
None of them offer a dividend. Instead, they are all focused on growth. Growth depends on the strength of each company’s offerings, as well as geopolitical / economic considerations such as trade wars or continued lockdowns in China. The latter may be problematic for Chinese firms unless Beijing adopts a new policy to deal with Covid-19. This, along with the threat of delisting in the US, is a concern and has weighed on NIO’s share price.
However, on offerings alone, I think NIO can be a market leader. Numerous car review videos have led me to believe that it can seriously rival Tesla in lucrative Western markets. In fact, it claims that a version of its ET7 can go as far as 1,000km on a single charge, putting it some distance ahead of its Tesla equivalent.
There’s another area that interests me. NIO cars can swap batteries in a matter of minutes at garages run by the manufacturer. This allows NIO drivers to avoid a lengthy charging process and gets them back on the road in less than 10 minutes. I appreciate Tesla has trialled this tech, and elected not to use it. But I do think it’s a great selling point for the Chinese firm.
Should I buy?
I bought NIO stock last week. Over the past week I’ve seen some strong gains, but I’d still buy more and hold NIO for the long run. The Chinese automaker is on a Tesla-esque growth curve but looks like much better value to me.