Nio Could Rally to New Highs Like Tesla

All is effectively in the electric automobile (EV) world. Or is it? Tesla (NASDAQ: TSLA) shares may perhaps per chance well perhaps additionally be rallying to novel all-time highs after earnings, nonetheless that doesn’t mean the rest of the residence is doing effectively. Assemble Nio (NYSE: NIO) as an illustration. Whereas NIO stock is up more than 20% from this month’s low, the stock is quiet down about 40% from the highs.

A Nio (NIO) sign outside of the company's facilities in Shanghai, China.

A Nio (NIO) signal outside of the company’s facilities in Shanghai, China.

Source: Andy Feng / Shutterstock.com

That’s a remarkable diversified fable than what we’re seeing with Tesla. TSLA stock has rallied for nine straight weeks and has entirely overlooked the correction in the stock market. No longer to mention it’s abet at novel highs.

So the set did NIO stock lumber corrupt? Moderately, perhaps we needs to be asking if this EV stock may perhaps per chance well perhaps be the next to lumber on a torrid glide and create novel highs. Finally, Nio is no humorous fable in this substitute, be pleased a handful of newest particular reason acquisition company (SPAC) offerings have turn out to be.

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What’s Wicked With Nio?

Nio’s peril has much less to create with EV momentum and more to create with its have execution.

In mid-August, the company reported earnings. Whereas the outcomes were sturdy — a top- and bottom-line beat — the Road wasn’t buying for it. Literally. The stock fell in six straight sessions and in seven out of eight days. Amid the decline, NIO stock suffered a height-to-trough decline of 21.9%.

We beforehand talked about the earnings file, so I won’t rehash it right here. However to undercover agent a stock continue to fling (while the market modified into as soon as making novel highs), after Nio more than doubled revenue and gave sturdy guidance is… concerning.

The corporate’s momentum suffered one other downshift a pair of weeks later. In early September, NIO no longer most effective minimize its third-quarter birth guidance (the very guidance it has factual given a enhance to in its quarterly file) nonetheless soon after, the company launched a $2 billion capital raise.

The reduce worth in guidance modified into as soon as mostly tied to Covid-linked factors in China and provide-chain constraints. That’s an even bigger peril than an absence of demand.

That acknowledged, for a stock that trades at this excessive of a valuation, Nio has to have colossal execution. Peep at Tesla. The corporate continues to operate incredibly effectively, which, alongside with the technicals, is one motive I’ve argued it’s going to a $1 trillion market capitalization.

When we mediate at Nio stock, the company instructions a market capitalization of “factual” $65 billion. That’s a nice descend from the $90-plus billion market cap it had earlier in the yr. Whereas Nio had sturdy momentum, that valuation has repeatedly afflicted me.

Nio is forecast to generate $5.6 billion in gross sales this yr. On the other hand, in 2022 and 2023, analysts search info from gross sales of $9.37 billion and $14.1 billion, respectively. That’s very impressive growth if Nio can operate it.

Trading Nio Stock

Daily chart of NIO stock

Every single day chart of NIO stock


Click on to Enlarge

Source: Chart courtesy of TrendSpider

Correct now, there’s no longer a momentum peril with EVs. Indubitably, one may perhaps per chance well perhaps additionally argue that the synthetic has never been as sturdy as it is now. With Tesla stock in any respect-time highs, Nio stock’s lacking momentum says more about its have enterprise than the EV enterprise as a total.

If the company can launch to create at an even bigger stage and the market is in a “risk-on” means, then Nio stock should abilities bigger costs.

That acknowledged, buy into consideration that this stock rallied over 3,000% from the 2020 low to the 2021 excessive in January. The rally from the low in 2019 is even bigger. So for Nio to consolidate for a diminutive needs to be viewed as healthy mark action.

The chart for Nio stock is moderately intelligent. Whereas we had a gigantic correction from the February highs to the lows in Might per chance per chance, the stock has narrowly refrained from making novel lows, which is factual.

We lately had a 5-wave “ABCDE” correction down the low $30s ahead of a pop bigger. Now abet above the 10-day and 50-day appealing averages, let’s look for that the stock mark can quit above these measures. If it will, a test of the 200-day appealing moderate and downtrend resistance (blue line) may perhaps per chance well perhaps additionally be in shriek.

Under the month-to-month quantity-weighted moderate mark (VWAP) measure will leave NIO stock remaining inclined. With any fair correct fortune, earnings will be enough to jumpstart the bullish fable as soon as more.

In every other case, we want to note out with Nio, which quiet instructions a lofty valuation by auto-stock requirements.

On the date of publication, Bret Kenwell did no longer have (either straight away or circuitously) any positions in the securities talked about in this text. The opinions expressed in this text are those of the author, self-discipline to the InvestorPlace.com Publishing Strategies.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

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