Nio Stock Selloff Is a Prime Buying Opportunity

Stocks to buy
  • China’s stock prices have fallen in recent weeks, which is largely due to U.S. policy changes. Nio (NIO) has also been feeling the effects and its share price has dropped, too.
  • The depression in the price has created an enticing buying opportunity for a risk-tolerant investor.
  • Nio is making strides and looking to be in a good position in the near future.
Source: Robert Way / Shutterstock.com

Nio (NYSE:NIO), the Chinese electric vehicle (EV) manufacturer, has lately seen its share of struggles. As demand for cars and consumer spending drop, fewer investors are willing to take the risk on trades like NIO. However, there are several reasons why you should invest in NIO stock and take advantage of the sluggish price momentum.

For one thing, there are several product launches that you can look forward to. The EV maker is also looking forward to expanding its presence in China and Europe.

The bear arguments have more to do with the general environment than anything specifically related to NIO stock. Growth stocks in general are having a tough time of it because of the interest rate hikes and rising oil prices.

In addition, a trade war between the U.S. and China has taken a toll on many stocks and markets, including Nio and other U.S.-listed Chinese stocks that plunged on fears of being delisted from American exchanges.

However, the important thing when analyzing the news is to keep an eye on the company’s fundamentals. On that front, things are moving in the right direction. Nio’s revenues and profitability are increasing, which stabilizes its debt situation. I am optimistic that strong top-line growth and new product launches will continue to buoy the company moving in this year.

NIO Nio Inc. $21.75

The ET7 Is the First Bright Spot This Year

Nio is a Chinese EV company. It was founded in 2014 and is headquartered in Shanghai.

Despite being a young company, Nio has done very well, smashing delivery records and becoming known as the Tesla of China. However, since the start of the year, shares have traded downward because the company has reported a slowdown in deliveries in the first three months.

Nio’s first-quarter (Q1) deliveries are set to be around 25,000 to 26,000 vehicles. The company delivered 9,652 and 6,131 cars in January and February, respectively. You can attribute this slowdown to the Chinese New Year, which often takes a toll on sales volumes.

Nio sold more than 25,000 electric vehicles during the fourth quarter of 2021, rising 44% year-over-year, and it was slightly better than the previous quarter.

Nevertheless, investors did not take kindly to the slowdown and punished the EV maker quite heavily. Plus, XPeng (NYSE:XPEV) and Li Auto (NASDAQ:LI) outperformed the company in the first two months, pressuring the EV maker.

In the middle of all this, the company’s launch of its first electric sedan, the ET7, a long-range Model S rival, has been met with great fanfare. The first batch of users in China received the vehicle on Mar. 28. This year, Nio plans to release three new electric cars based on the second-generation technology platform, NT2.0. With these models up for sale, there will be six models.

The introduction of these models is great news for investors looking for some reprieve in the market after a grueling few months for NIO stock.

NIO Earnings Had Silver Linings

Nio did not do any favors in reporting its latest earnings. It had a loss of 1.36 yuan for the quarter, much higher than analysts had expected. On the bright side, revenue increased by 49.1% year over year, with NIO’s total vehicle sales at 9.2 billion yuan.

The gross margin also improved to 20.9% versus 17.2% last year. According to the company, increasing selling prices led to increased margins. Nevertheless, the fact that markets absorbed the price increase is what one should think about.

In reporting its earnings, the company said it forecasts deliveries for the first fiscal quarter to come in between 25,000 and 26,000. That translates to roughly 24.6% to 29.6%. Meanwhile, revenue is set to increase from 20.6% to 25.1%.

Analysts predict that by the end of the first quarter, we can expect delivery numbers to sit around 28,000.

This is a disappointment. However, one also must acknowledge the tremendous supply chain issues the EV maker is facing. Shortages of semiconductors are nothing new and are acutely affecting several industries. Therefore, one has to understand the numbers within this context. Overall, the results are not that bad.

NIO Stock Can Turn the Tide

Luke Lango and a host of other investment gurus are bullish about NIO stock. And there is reason to be. After all, the company has established itself in a very short period. It is now Tesla’s main competition in the large EV market.

Undoubtedly, it has stumbled in the last few months on the back of supply chain issues and concerns about Chinese securities. But that hasn’t made the company a bad investment. In fact, for value investors, this is a great opportunity to purchase NIO stock at a discount before it moves upward.

On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.

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