Buy Dip in NIO stock before it increases much, much more

Shares of Chinese premium electric vehicle manufacturer Nio (NYSE:NIO) fell on Tuesday after the company released mixed fourth quarter figures that did not impress investors. NIO’s shares fell about 12% in response.

This dive is a great shopping opportunity.

NIO’s delivery numbers are somewhat unstable now because of the unique noise, including the Chinese Lunar New Year holiday and the scarcity of semiconductor chips as a result of the Covid-19 pandemic. However, that noise will pass.

The underlying fundamental trends of the NIO, however, remain very healthy. This allows the company to scale delivery and production, expand globally, maintain high average selling prices and increase revenues and profit margins.

Because of its solid fundamentals, NIO’s stock is likely to double-test its recent low at around $ 45, maintain that level and then go back to $ 70.

Net net, buy the dive on NIO!

Here is a more in-depth look:

The profit from NIO’s shares looks good

NIO’s shares fell 10% after the company reported fourth-quarter earnings. Why? Because deliveries have not impressed.

February deliveries fell 23% from the previous month, after a period of several months of sequential gains. So, to make matters worse, management said on the conference call that production volume would have to hit 7,500 vehicles per month in the second quarter of 2020 – against what should be 10,000 vehicles per month, with the reduction due to a global chip shortage. semiconductors.

This is not good news.

But the problem is this: they are temporary headwinds.

The drop in February deliveries is due to the Chinese lunar new year holiday, during which consumers tend to postpone high-value purchases. This holiday is over. In March, deliveries will return to “ramp” mode.

Meanwhile, the chip shortage has a longer impact here. But not so much. Factories around the world are already returning to full production. In the summer, this chip shortage will be old news. NIO’s production volume will be reduced to 10,000 vehicles per month at the beginning of the third quarter.

Therefore, the bad news in the NIO earnings report is all short-term. In the meantime, there was a lot of good. Average selling prices have increased, indicating that demand (without discount) is driving growth. Vehicle margins increased three points sequentially. Gross margins increased by four points. The adjusted loss has decreased. European expansion continues on the right track. ET7 reserves exceeded expectations.

All in all, this business is still firing on all cylinders, except for a few short-term headwinds that will pass.

Watch Double Dip

As fundamental business trends remain favorable, this drop in NIO’s shares will be short-lived.

I’m looking for NIO shares to come back and test its recent $ 44 low, which hit last week amid fears of rate hikes. This will be a “double dive” test. If NIO shares pass this test – and maintain their recent low – then it is a strong sign that the recent sale of NIO shares is coming to an end.

I suspect that NIO’s shares will pass this “double dip” test. That’s because rates have calmed down, while NIO’s earnings report pointed out that the business is still skyrocketing across all cylinders today.

To that end, I see this sale of NIO shares as occurring at the ninth entry. This is going to end. Coming soon. And at prices not much lower than the current ones.

NIO stock for $ 70?

As a result of the company’s earnings report, I am revising my NIO estimates upward, despite the drop in NIO’s shares.

That’s because I was impressed with a few things in the report.

First, the 23% sequential drop in deliveries in February is really impressive. Two years ago, February deliveries were down 56% from the previous month. All things considered, then, a 23% drop is actually very resilient.

Second, ASPs are strong. They earned about $ 58,000 in the quarter. This represents an increase of 18% year on year and 7% quarter on quarter. As a result of this ASP strength, I am revising my long-term ASP goals even further.

Third, margins are performing above expectations. Vehicle and gross margins rose above 15% in the quarter. They are fast approaching 20% ​​- and the NIO is far from reaching scale. In the long run, I think gross margins could rise to more than 20 years.

Consequently, my model now suggests that NIO will generate approximately $ 6 in earnings per share by 2030. Based on a multiple of 25X future earnings and a 10% annual discount rate, this implies a price target of 2021 for the $ 70 NIO shares.

I think this is where stocks will tend after hitting bottom at around $ 44.

NIO stock result

NIO’s earnings report was hit by short-term headwinds. These headwinds will pass. When that happens, the company’s long-term favorable winds – strong demand, healthy ASPs, new car launches, global expansion, etc. – return to focus and drive NIO’s actions to new highs.

As a result, I still see NIO’s shares as one of the fastest growing stocks to buy today.