In the fast-growing electric vehicle (EV) landscape, NIO (NYSE: NIO) has emerged as a prominent player. As investors continue to seek the best opportunities in the expanding EV market, it stands out as a contender worth considering. With NIO stock down 53% in the last 12 months, is now the time for me to consider adding some shares to my portfolio? Let’s take a closer look.
Slowing revenue growth
NIO demonstrated impressive growth in its 2022 results, with revenues surpassing $6.5bn, a 37% year-on-year increase. This explosive growth highlighted its ability to capture an expanding share of the EV market. It was also advancing the company towards competing effectively with the incumbent players.
Fast forward to 2023, and the picture is notably different. For the first six months of 2024, revenues totalled just $990m. This was a sharp 24.9% decline from the second quarter of 2022. In addition to this, it marked a 22.1% drop from the first quarter of 2023. For me, the allure of the stock lay in its explosive growth. With that spark seemingly dimmed, the investment proposition seems much less appealing.
Thoughts on valuation
In the past NIO has been criticised for sporting a lofty valuation, rivalling its heavyweight competitor, Tesla. However, it seems that the tides have shifted. As things stand, the share price appears to offer enticing value in comparison to its industry peers.
NIO currently trades on a price-to-sales (P/S) multiple of two. This implies that investors price the stock at roughly double its annual revenue. Comparing this to close competitor Xpeng, which trades one a P/S multiple of five, indicates that NIO could be undervalued. The heavyweight market leader Tesla has a P/S ratio of 9, providing further support to this idea.
Wider concerns
The current macroeconomic climate doesn’t bode well for stocks like NIO, especially considering its main draw for investors is its high growth. This fast rise relies heavily on debt. This is a factor that looms large with the firm’s current substantial debt load exceeding $4bn on its balance sheet.
As inflation and interest rates remain high across the globe, having large amounts of debt like this could mean trouble for NIO. China, its home country, hasn’t been immune to these headwinds. Earlier this month one of its largest property developers, Country Garden, missed interest payments on dollar bonds sparking a wave of concern over the country’s economic health.
In light of NIO’s recent slowdown in revenue growth, a shifting valuation landscape, and broader economic concerns, for me, now isn’t the time to consider investing in this stock. The once-explosive growth seems to be slowing, with revenues already declining significantly in 2023.
While the valuation might appear tempting when compared to peers, the company’s heavy debt burden and the uncertain macroeconomic climate raise red flags. If it can deliver solid growth throughout the back half of 2023 I may reconsider my position. However, for now, I won’t be investing.
The post Is NIO stock a buying opportunity under $10? appeared first on The Motley Fool UK.
Should you buy NIO now?
Don’t make any big decisions yet.
Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.
And he believes they could bring spectacular returns over the next decade.
Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows…
When such enormous changes hit a big industry, informed investors can potentially get rich.
So, with his new report, Mark’s aiming to put more investors in this enviable position.
Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!
Grab your FREE Energy recommendation now
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
If I’d put £5k in NIO shares at the start of 2023, here’s how much I’d have now
Is NIO stock now a buy at $11? Here’s what the charts say
Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
