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Nio’s Results Should Show the Tesla Competitor is Real Competition

Nio (NYSE:NIO) has taken a massive hit in the past several months. From closing at $43.20 on Nov. 8, Nio stock is now down 44% to around $24.10 today. One would think that the company was going out of business with a fall like this.
Source: S…

Nio (NYSE:NIO) has taken a massive hit in the past several months. From closing at $43.20 on Nov. 8, Nio stock is now down 44% to around $24.10 today. One would think that the company was going out of business with a fall like this.

Source: Sundry Photography / Shutterstock.com

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But it isn’t. Far from it. Patient value investors know this and will take advantage of the drop in NIO stock. They believe that years from now, NIO stock could be at multiples of its price today.

So far, Nio has not released its fourth-quarter (Q4) earnings, although we know how many electric vehicles (EVs) it has delivered. I suspect the company will do so this week or shortly thereafter.

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Where Things Stand With Nio Now

On Feb. 1, Nio reported that it delivered 9,652 EVs in January 2022. This was 33.6% higher than last year. This was also after it delivered 10,489 EVs in December 2021, up 49% year-over-year (YOY). This shows that its deliveries fell from Dec. 2021 to Jan. 2022. That is not good. It could imply that the company is suffering from a chip shortage or issues with production.

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However, it delivered 25,034 vehicles in the three months ended December 2021. This was up 43.4% YOY.

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So, the company is clearly on a roll, although its recent production may be taking a dip. When we see the financials, it should be clear if Nio met analysts’ revenue targets. As it stands, they forecast sales of $5.63 billion for 2021, up 120% from 2020 when sales were $2.55 billion.

Moreover, these same analysts forecast sales of $9.88 billion for 2022, up 75% for 2022. If that comes to pass this year, its present near-$38 billion market cap will look way too cheap.

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After all, this gives it a price-to-sales (P/S) multiple of just 3.85 times. By comparison, Tesla stock (NASDAQ:TSLA) trades for 10.8 times this years’ sales forecasts, according to Seeking Alpha.

What Nio Stock Could Be Worth

Granted, Tesla is much further along than Nio and it deserves a much higher P/S multiple. But the gulf between 3.9x P/S and 10.8x is pretty great. A more realistic multiple would be at least 5x sales.

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That would put Nio’s prospective market cap at $49.4 billion, at least. This is at least 30% higher than today’s price.

This implies that NIO stock could be worth at least $31.33 per share (i.e., 1.30 x $24.10). This is still well below the company’s recent peak price of $43.20 on Nov. 8.

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What to do With Nio Stock

Twenty-five analysts surveyed by Seeking Alpha think NIO stock is worth $56.26 on average. That represents a potential upside of 133% for NIO stock.

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Similarly, according to TipRanks, ten analysts who have written up Nio stock in the last 3 months believe it is worth $60.86 on average. This represents a potential gain of 152% over today’s price.

In other words, they all think Nio stock is way too undervalued and believe it will rebound. In fact, my measly target price of $31.33 may be woefully undervaluing the company as it stands.

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Recently Barclays analyst Jiong Shao wrote up Nio stock along with Xpeng (NYSE:XPEV) and Li Auto (NASDAQ:LI). According to Barron’s magazine, Shao believes rapid adoption of EVs in China and supportive government policies will push penetration of EVs to the highest in the world.

Penetration hit 15% in China in 2021, which is up from just 6% in 2020. That is an amazing gain in EV penetration in just one year.

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One of the issues with why NIO stock is so cheap relates to whether it could be delisted in the U.S. That is probably scaring some investors. There does not seem to be any prospect of that right now, at least for the time being. If it were to happen, the stock would be listed elsewhere and investors would be able to trade their shares there.

In the meantime, for value investors, it could appear that NIO stock could be a very good investment, at least for the near term.

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On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) 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.

Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.

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