Is NIO stock a buy at $20?

NIO stock has been pretty volatile over the past few months. Here, Dylan Hood takes a look to see if now is the time to buy at $20.

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NIO (NYSE: NIO) has been an interesting stock to follow so far in 2022. Throughout 2020, it rose over 1,100%, but this momentum seemed to dissipate throughout 2021. Moving into 2022 and the stock has been pretty volatile. After reaching a low of just $12 in May, the stock has since charged back up over $20. Regardless of the recent positive movement, year-to-date returns are still pretty disappointing, with it down 40% this year. Over a 12-month span, the case is similar, with it falling 54%.

So, currently at the $20 mark, is now the time for me to buy this Chinese EV stock? Or should I steer clear? Let’s investigate.

Global economy

One risk I see for NIO moving forward is the state of the global economy. Inflation has been climbing at an astonishing rate so far in 2022 and shows no sign of slowing down. Caused by a combination of Covid-19-related supply chain issues, fiscal stimulus, and the Russia-Ukraine war, US inflation reached 9.1% in June. The outlook for the rest of 2022 is that this figure will continue to rise.

Inflation erodes the future value of a company’s earnings, which is bad news for a firm like NIO that’s yet to turn a profit. In addition to this, central banks tend to raise interest rates when inflation rises as a way of slowing down economic growth. On Wednesday last week, the US Federal Reserve announced it was raising the bank rate to 2.5%. As rates rise, people can earn higher interest on safer assets, and hence they turn away from riskier growth stocks like NIO. Continued rising rates could pose a threat to the NIO share price.

Encouraging results

However, when looking at the firm’s growth, I see some exciting stuff. In its Q1 2022 results, it outlined a 29% increase in year-on-year car deliveries. Revenues increased by a similar amount, reaching $1.5bn. NIO’s growth in 2021 was even crazier. Vehicle sales rose 118% and revenue rose a whopping 122% compared to 2020. If it can keep up this high level of growth, I think the stock will inevitably rise in the future.

Another edge that NIO has over its competition is its advanced battery-changing technology. The tech allows users to swap out their old battery within minutes at its own charging stations. No other competitor in the EV space currently offers this service, which could help it retain its market share.

The time to buy?

No doubt, the growth of NIO has been very impressive to watch. Its innovative tech also gives the firm an edge in a fiercely competitive market. However, I think that rising interest rates and inflation could continue to place a lid on the growth of the stock. Unfortunately, this is out of the company’s control and is the case for other growth stocks too. Therefore, I won’t be buying any shares at $20.

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 assessed. Consider taking independent financial advice.

Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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