Here’s why NIO stock is my top EV pick!

NIO stock had been one of the worst-performing shares over the last year, but it appears to have bottomed out. Here’s why it’s my favourite EV pick.

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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.

Good value

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.

StockP/S ratio
NIO4.5
Tesla11.4
Li Auto4.3
Rivian166
Lucid261

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.

Growth prospects

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.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

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James Fox owns shares in NIO. 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.

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 considered, so you should consider taking independent financial advice.

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