NIO (NYSE:NIO) shares have had somewhat of a turbulent year. The stock tanked amid the growth stock sell-off earlier in 2022, but Chinese lockdowns and concerns about the health of the Chinese economy have also pulled the EV-maker down.
So, let take a closer look at NIO’s fortunes and see whether this stock is right for my portfolio.
A turbulent year
If I had invested $1,000 in NIO shares a year ago, today I’d have $440. The stock has dropped 56% over the course of the past 12 months.
However, I’m in the UK, so my portfolio is in GBP. And the pound has lost 13% of its value against the dollar over the past year.
A year ago, £720 would have got me $1,000. And now $440 would get me £368. So because of the exchange rate fluctuations, I’d have lost 48%.
Obviously that’s not a good return at all.
Why did the share price tank?
In early 2022, investors turned away from growth stocks amid a surge in US treasury yields. Growth stocks had been on somewhat of a bull run and were beginning to look very expensive. After all, these companies, NIO included, trade on future profit expectations.
But these losses were compounded as China plunged cities, including Shanghai and Beijing, into lockdowns. As such, NIO’s production suffered in March and April, and so did its share price. NIO stock actually reached $13 a share in May — which is where I bought. The stock had traded for nearly $60 a share in early 2021.
Outlook
I’m pretty bullish on NIO. It’s on a Tesla-esque growth curve but still appears pretty cheap. Revenue doubled every year from 2018 to 2021, while the price-to-sales ratio is around 5.5 versus Tesla’s 13.5.
But I’m also bullish because of NIO’s offering in the EV space. It has a wide range of models on offer, but it also uses unique battery-swapping technology that allows owners to pop into a NIO garage and change their battery in a matter of minutes. This is much faster than conventional charging.
I also like the use of gadgets within the vehicle. It might be a gimmick, but drivers can talk to Nomi — an Alexa-like device on the dashboard — and ask it to do thing like open the window and even take a selfie.
As an investor, I’m a little wary about more Chinese lockdowns, but hopefully a more business-friendly approach from Beijing will keep the factories open during future outbreaks. The general health of the Chinese economy is also a cause for concern, but it looks like disaster will be averted at any cost.
Would I buy NIO stock at $20?
As I mentioned, I’ve already bought NIO stock, and it’s done pretty well. But would I buy more at $20? Yes, I would.
I’m wary that there could be some downward pressure in the near term. But in the long run, I think NIO has a lot further to go especially if certain milestones, such as the opening of a second factory this year and turning a profit in 2024, are hit.
