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Nio Stock: Is It A Double Bagger?

Shares of Chinese EV maker Nio are down nearly 30% in the last month. However, here's why one Wall Street analyst thinks the Chinese electric vehicle maker is undervalued.

It's been a bad few weeks for electric vehicle (EV) maker Nio  (NIO) - Get NIO Inc. (China) Report and other Chinese stocks.

Since Beijing's latest regulatory clampdowns have pushed Chinese stocks to the point of delisting from the U.S. markets, shares of companies from various sectors -- including Nio, Alibaba  (BABA) - Get Alibaba Group Holding Ltd. Report, JD.com  (JD) - Get JD.com Inc. Report, and Baidu  (BIDU) - Get Baidu Inc. Report -- have plummeted.

Still, Wall Street likes Nio's fundamentals and still forecasts huge upside for its stock.

If you're considering an investment in EVs, here's why you might want to keep a close eye on Nio.

Figure 1: Nio's ET5 model.

Figure 1: Nio's ET5 model.

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Why Wall Street Is Bullish on Nio

Nio is one of the major players in the EV market. Even though the company is far from achieving profitability, its market cap valuation is close to $50 billion.

However, the stock has suffered from headwinds due to the ongoing computer chip shortage and Chinese regulatory risks. To hedge against the latter threat, several giant Chinese firms have opted to list on the Hong Kong exchanges, as well as in New York.

But despite its questionable valuation and macroeconomic headwinds, Wall Street is extremely bullish on Nio. The consensus suggests that NIO is undervalued at current levels and forecasts more than 100% upside, with an average price target of $60. See below:

Figure 2: NIO analyst rating consensus.

Figure 2: NIO analyst rating consensus.

Morgan Stanley: NIO Is a Strong EV Stock for 2022

A couple of weeks ago, Morgan Stanley analyst Tim Hsiao updated his rating on NIO, reiterating a Buy recommendation and forecasting a $66 price target. That would imply a 120% upside.

According to the analyst, Nio lagged its peers throughout the year after the chip shortage stalled the company’s growth capacity. Nio also suffered from a lack of new products, as well as a plant restructure.

On the other hand, Hsiao also pointed out Nio may have missed its targets because its expectations were overly optimistic. In this case, more rational forecasts for 2022 will serve the company -- and its stock -- well.

Hsiao also mentioned that EV penetration in China is already tracking at 20% the 2025 target and that Nio will be a “key player to enjoy the structural tailwinds, with EV development still anchoring China's economic agenda in 2022.”

Lastly, the analyst added that Nio has superior branding to its competitors and offers much more than car sales. The company also sells services, energy solutions, software, and other products.

In addition, the 2022 release of new EV models powered by the NT2.0 autonomous driving platform will likely accelerate Nio's growth for the long term.

Our Take

It's undeniable that there's plenty of risk investing in growth stocks -- especially electric vehicle stocks. And in the case of NIO, the risk has increased since Chinese regulators have started forcing companies to delist from U.S. exchanges.

But it's also undeniable that the Chinese electric vehicle market has huge potential. Nio's products and services will likely see overwhelming demand in the foreseeable future.

Long-term investors who want to capitalize on the EV market may want to watch NIO closely. But buckle up: Until the company proves its potential, its shares may experience a good deal of volatility. 

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)