NIO (NYSE:NIO) stock was pretty volatile in May as investors evaluated the impact of China’s lockdowns and the value of tech stocks. Its shares tumbled at the beginning of the month before rising again to $17.30. If I’d bought in at the low, I’d be up 36% right now.
I’m a big fan of NIO’s offering in the electric vehicle (EV) market, and bought just after the stock bottomed out. So with its gains over the last three weeks, should I buy more, or am I too late?
What’s behind NIO’s gains?
Firstly, let’s look at the reasons for NIO’s gains over the past three weeks. There’s been a number of developments that have pushed the NIO share price upwards from its $12 nadir.
China has relaxed its Covid-19 restrictions in Shanghai. NIO, which is based there, saw vehicle deliveries plunge nearly 50% to 5,074 units in April from a month earlier. The reopening of the mega-city has eased investors’ fears about production being negatively impacted for months on end.
NIO has also sidestepped fears relating to its potential delisting on the NYSE. On 20 May, NIO successfully listed its Class A ordinary shares on the Main Board of the Singapore Stock Exchange. It was also recently listed in Hong Kong.
This positive news has also been reinforced by a general uptick in Chinese stocks domestically and on the NASDAQ. Both the Hang Seng and NASDAQ surged upwards in the last week of May.
Is it too late to buy?
Am I too late to buy more? I don’t think so. In fact, NIO is my favourite EV stock and I think it has great prospects.
Despite the recent gains, NIO is actually down nearly 60% over the past 12 months. It fell like many other tech stocks as investors reevaluated its growth potential.
But I think NIO offers the best value for money in the sector. While it is yet to make a profit, it has a price-to-sales (P/S) ratio of just 4.5. That’s particularly cheap compared to its American EV peers. Rivian, for example, has a P/S ratio of over 500. Tesla‘s P/S ratio is 13.
It’s also on a Tesla-esque growth curve. Over the last four years, NIO has almost doubled car sales and doubled revenue every year. The group sold more than 91,000 cars in 2021. That’s more than 10 times the number sold in 2018.
I’m also a big fan of its tech. NIO is pioneering battery swapping and owners in China can already do this. Simply by popping to a NIO garage, drivers can swap their empty battery for a full one in a matter of minutes.
NIO also recognises that people buy things like groceries and clothes a lot more often than cars, so it’s becoming something of a lifestyle brand, entering these additional areas. This could certainly enhance revenue in the coming years.
However, I remain concerned about more lockdowns in China hurting both production and demand. Beijing appears persistent in achieving its zero-Covid objectives. But long term, I think NIO is well-positioned to grow.
So will I buy more NIO stock at $17? Yes I will.
