NIO (NYSE:NIO) shares are one of the few growth stocks held in my portfolio. The thing is, I tend to prefer to invest in more reliable and income-generating dividend stocks. So when I do invest in growth stocks, there has to be a really good reason for it.
What’s so great about this electric vehicle (EV) maker then? Let’s take a look.
Valuation
NIO’s valuation makes it particularly competitive versus its peers. It’s not a profit-making company yet, so we can’t compare it with other companies on earnings-related metrics.
However, we can compare NIO with other stocks by revenue and sales. It currently trades with a price-to-sales ratio of two. By comparison, sector leader Tesla trades at 7.5 times sales, while US newcomers Lucid and Rivian trade at 11 and eight times sales.
As we can see, NIO trades at a considerable discount versus its US peers, but it’s broadly in line with Chinese peers.
However, I believe the discount on Chinese EV stocks is rather overdone. Yes, US companies likely possess greater capacity to access lucrative Western markets, but China is a huge market, and Chinese companies, including NIO, are pushing into Europe.
DCF calculations for NIO see fair value ranging from $13 to $58.
Unique technology
NIO has an exceptional range of high-performance vehicles. And this is important as a range provides customers with options. They’re priced competitively versus US and European counterparts, but largely focus on the higher end of the market.
NIO also utilises a fairly unique technology, battery-swapping. This technology allows users to change their empty batteries for full ones in a matter of minutes. The company has been developing networks of these charging stations — this also represents another revenue-generating operation.
As part of an effort to kickstart operations in Europe, NIO has opened a factory in Pest, Hungary, to manufacture battery-swap stations.
Moreover, although some features may be gimmicky, NIO has an exceptional amount of technology installed on its cars. Vehicles have a dashboard-mounted Alexa-like device called Nomi. The voice-controlled gadget can open the windows, the boot, and even take a selfie — to me, the latter doesn’t sound like it’d meet EU regulations.
I think all of these features make it a winner.
Risk vs reward
As with any company, there are risks. I appreciate there are concerns about reaching the lucrative European market, and ramping up production.
Its management looked to reassure investors in recent weeks, reiterating that it is “very confident” of doubling sales to 250,000 during the year.
The CFO said the company is also “confident” about breaking even at the group level in 2024, adding “strong revenue growth together with tightened spending are the key to improved profitability”.
So are NIO shares the bargain of the year? Well, it’s hard to say. But, for me, it’s one of the most promising EV stocks out there, and I think it really has a unique offering. I’m continuing to stock up on its shares with the price lingering below $10.
