NIO shares slump again! Is this an unmissable buying opportunity?

Dr James Fox takes a closer look at NIO shares with the price pushing downwards on the back of Tesla’s aggressive discounting strategy.

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NIO (NYSE:NIO) shares are one of the few growth stocks in my portfolio. The Shanghai-based electric vehicle (EV) company is among the most volatile I’ve come across. I don’t enjoy this volatility, but it does create opportunities.

Recent downward pressure hasn’t been positive for my holdings. However, it does present me with the chance to buy more of my favourite growth stock at a knockdown price.

So why do I think NIO is such a great company? Let’s take a closer look.

Valuation

Valuation is one aspect that makes NIO an attractive stock. The company trades at just 1.69 times sales. By comparison, Tesla trades with a price-to-sales ratio around 6.5 — even after its stock pushed downwards in recent weeks.

Discounted cash flow metrics suggest a fair value for NIO anywhere between $13 and $61. While there is a huge variation between these two figures — primarily because it can be hard to value a company that’s yet to make money — they both represent a significant upside on the current $8.20.

Investors will also be looking at the share price decline over the past two years. In January 2021, the NIO share price peaked at $61.95. It’s down a whopping 85% during that time, so it’s no wonder investors think they’re picking up a bargain.

It’s also worth noting that the EV maker has an impressive $5.6bn of cash on hand — that’s a lot for a company with a market-cap just north of $13bn.

Optimism on growth

NIO is cheap compared to its non-Chinese peers. But I also like this company because of its offer in the sector. Unlike its competitor in China, Li Auto, NIO has a range of vehicles. This provides choice to customers who like the brand. That’s the first plus.

But it also uses unique technology that could be a real winner going forward. The company provides swappable battery technology as standard and customers can save on the purchase price by using its battery-as-a-service (BaaS) programme.

The cars are also fitted with voice activated controls that allow the driver to open the windows without taking their hands off the wheel. There are other features such as using the voice controls to take selfies and open the boot — the former not being overly useful, but gimmicks do work.

Snapping it up

With NIO trading around $8 or $9, I’ve been topping up my position in the exciting EV firm.

I appreciate this Chinese company could face challenges trying to access the lucrative US market. That’s a concerned that has been widely voiced.

However, China represents the biggest EV market worldwide and NIO is making strides into Europe, setting up a factory to create battery-swapping stations in Hungary last year.

The big question is when will the promised growth take place? Analysts are projecting NIO’s revenue in H2 to surge to $7.3bn, from an estimated $4.3bn in H1. So it could be sooner than many thought.

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.

James Fox has positions 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.

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