NIO stock is flying! Is $20 back on the radar?

Jon Smith writes about the strong move higher in NIO stock, but questions if the run has further legs to push it back up to $20 and beyond.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Chalkboard representation of risk versus reward on a pair of scales

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The past month has been a great one for NIO (NYSE:NIO). The electric vehicle manufacturer has gained 17% in value over this time period, breaking above $10. However, it’s still down 45% over the past year. With NIO stock a far cry from the $20 price from last August, is this a realistic level for potential investors to target?

Reasons for optimism

One of the reasons that helped to boost the share price recently has been strong production and delivery numbers from competitors. For example, Tesla Q2 delivery numbers came in at 466,140, a jump of 83% year on year. Rivian also posted a strong trading update, with it being on track to hit production of 50,000 this year.

This has helped to buoy the NIO share price, as investors assume that this is an industry-wide demand trend.

Should you invest £1,000 in Barclays right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Barclays made the list?

See the 6 stocks

Another factor aiding the gain came from confirmation of a $738.5m investment from CYVN Holdings, an Abu Dhabi government-owned business. The Chairman of CYVN commented that it was committed to “providing strategic value that will support NIO’s international business growth“. Such help could support and accelerate growth for not only NIO, but also for the share price.

A potential rise to $20

From the current price, we’re talking about almost a 100% gain to reach $20. Yet this isn’t unrealistic, as it traded close to $60 back in early 2021.

I can’t use some traditional financial metrics to assess valuation as the business is still posting losses. However, I can look at tools that don’t use earnings, such as the price-to-sales ratio. This measures the share price relative to revenue (sales) per share. A low figure indicates a potentially undervalued stock. Currently, NIO has a ratio of 2.51. In comparison, it’s 11.52 for Tesla. So even if the share price doubled to $20 with the same sales figure, it still wouldn’t be overvalued relative to an industry peer.

Let’s not get ahead of ourselves

Despite the calls that the stock is still undervalued, the financials do concern me. The Q1 2023 results revealed a gross profit of just $23.6m. This is the lowest level since Q1 2020, which isn’t good as it doesn’t show progress.

The gross margin of 1.5% is lower than the 3.9% from Q4 2022. It’s at the level now where it really needs to hold or move higher, as a negative margin is a big red flag.

On balance, I do feel that the stock can reach $20 over the next year. Yet I believe this is going to be driven by revenue growth and investor optimism about the future for the business. I don’t think it’ll be driven purely by company profits, as in recent months the figures have been poor yet the stock hasn’t materially fallen.

Created with Highcharts 11.4.3Nio PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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.

Jon Smith has no position in any of the shares mentioned. 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.

More on Growth Shares

Young Caucasian man making doubtful face at camera
Investing Articles

2 popular UK growth stocks I wouldn’t touch with a bargepole in today’s market

Buying growth stocks can deliver market-beating returns, but this FTSE 250 pair doesn't look like a convincing investment for our…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

Around a 1-year high, is there enough value left in Next’s share price to make it worth me buying?

Next’s share price has risen a lot in eight months, but there could still be a lot of value left…

Read more »

Investing Articles

The Rolls-Royce share price has fallen! Is this the moment investors have been waiting for?

Even the Rolls-Royce share price can't escape current stock market volatility, falling slightly over the last week. Should investors consider…

Read more »

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

£10,000 invested in Raspberry Pi shares at the beginning of 2025 is now worth…

Raspberry Pi shares offer something a little different for UK-focused investors. But while the minicomputer company surged after IPO, it’s…

Read more »

Investing Articles

Up another 53% in a month! Can the Greatland Gold (GGP) share price keep rocketing?

The Greatland Gold (GGP) share price has enjoyed yet another dazzling month and Harvey Jones is captivated, while also warning…

Read more »

Investing Articles

Are things about to go from bad to worse for this legendary FTSE 250 stock?

Aston Martin is an iconic FTSE 250 stock that’s been struggling lately. And it looks as though President Trump’s not…

Read more »