The Motley Fool

Hargreaves Lansdown investors are buying NIO stock. Should I buy too?

Image source: Getty Images.

Electric vehicle maker NIO (NYSE: NIO) is a stock that’s getting a lot of attention right now. Last week, NIO was the fourth most bought stock on Hargreaves Lansdown.

It’s not hard to see why its shares are popular at present. News from the company is encouraging and its share price is soaring (900%+ year to date). Some investors believe NIO could be the ‘Tesla of China.’ Should I buy some stock myself? Let’s take a look at the investment case.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

NIO stock: what’s all the fuss about?

NIO is a Chinese electric vehicle (EV) manufacturer headquartered in Shanghai. The company, which describes itself as “the next generation car company,” develops premium smart electric cars that feature advanced technologies such as artificial intelligence. NIO isn’t the largest EV manufacturer in China. However, like Tesla, it’s seen as a very fashionable brand.

NIO stock
Source: NIO Inc 

Strong trading update

A trading update last week showed the Chinese company has a lot of momentum right now. NIO said that in October, it delivered 5,055 vehicles, an increase of 100% year-on-year. Meanwhile, it delivered 31,430 vehicles for the 10 months to the end of October, up 111% year-on-year. As of 31 October, cumulative deliveries of its ES8, ES6 and EC6 vehicles was 63,343. The company is set to report its Q3 results on 17 November.

No profits 

Looking at the financials, it’s clear its top line is expanding rapidly right now. Last year, revenue was $1.12bn. This year, it’s expected to be around twice that at $2.25bn. Next year, revenue is forecast to be $3.98bn. That’s impressive growth.

It’s important to understand however, that the company isn’t yet making a profit. Last year, it generated a net loss of $1.6bn. This year, Wall Street analysts forecast earnings per share (EPS) of -70 cents. Next year, they forecast EPS of -42 cents. This lack of profits adds risk to the investment case, particularly when you consider the company has a market capitalisation of nearly $60bn at present.

High valuation

Zooming in on the valuation, NIO shares currently have a forward-looking price-to-sales ratio of about 26.7. That’s expensive. Tesla, by contrast, currently trades on a price-to-sales ratio of about 13.3. Given that many analysts consider Tesla to be overvalued, it’s fair to say NIO stock isn’t cheap.

Short interest 

Investors should be aware that since NIO’s share price has jumped recently, short interest has increased. According to data from 2iQ Research, short interest jumped 23% on 4 November. This indicates that hedge funds anticipate a share price fall. I see this as bearish.

A top UK tech investor owns NIO 

However, my findings are not all bearish. It’s worth pointing out that NIO is a top holding in the Scottish Mortgage Investment Trust. Given SMT’s track record when it comes to picking tech winners (it’s made billions from Tesla and Amazon), I see this as a bullish sign.

NIO stock: my view

Overall, I think NIO looks interesting. Considering the market for electric vehicles in China is expected to boom over the next decade, I think it has potential. However, its valuation is high and the lack of profits adds risk.

All things considered, I’m going to keep NIO shares on my watchlist for now. At the moment, I think there are better growth stocks to buy.

Like this one...

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Edward Sheldon owns shares in Hargreaves Lansdown, Amazon and Scottish Mortgage Investment Trust. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and Tesla. The Motley Fool UK has recommended Hargreaves Lansdown and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.