Nio (NIO) released its a lot-anticipated earnings outcomes after market hours on March 1, and with the firm lacking earnings and GAAP EPS estimates, it appears very likely that NIO stock will likely be headed lower.
Then every other time, any decline will likely be considered as an opportunity to purchase up stock from a medium to long-term Investment perspective. There are several positives to place in mind despite a microscopic disappointment in headline numbers.
Sooner than diving deeper into the Q4 2020 numbers, let’s briefly discuss the industry tailwinds. Very finest year, contemporary energy automobile sales in China comprised 5% of total automobile sales.
The nation is focused on contemporary energy automobile sales at 20% of total automobile sales by FY2025 and closer to 50% by FY2035. The electrical automobile (EV) industry is therefore positioned to grow at a stable tempo over the next decade.
Obvious Catalysts From Q4 Outcomes
At the foundation of FY2020, the ideal advise for Nio modified into once to stable financing for yell and to lower cash burn. A year later, these headwinds had been addressed.
As of December 2020, Nio reported cash and equivalents (at the side of non permanent investments) of $6.5 billion. To boot, the firm’s working level loss narrowed to $142.7 million as of Q4 2020. It’s also rate noting that the firm’s automobile margin modified into once 17.2% in Q4 2020, in contrast with a adversarial 6% in Q4 2019.
Clearly, the firm’s performance has improved at an working level with key causes being cost cutting initiatives thru FY2020 coupled with economies of scale. For Q1 2020, the firm’s automobile deliveries amounted to 3,838 and increased to 17,353 in Q4 2020.
As sales proceed to grow, it’s very likely that Nio will cease working level profitability in the next couple of quarters. One other astronomical obvious is that Nio generated obvious working cash flows for Q4 2020 and FY2020. Finally, valuations boil down to the level of free cash drift a firm can cease. Once working and free cash flows dawdle, NIO will likely be headed tremendously higher.
Automobile Provide Boost Triggers
It’s main to tell the factors that can proceed to enhance automobile deliveries. This can translate into high-line yell and cash drift upside.
An glaring intention off for automobile offer yell is apparent industry tailwinds. Nio launched battery-as-a-service (BaaS) in August 2020 and this initiative will likely proceed to enhance automobile deliveries. Patrons selecting BaaS (month-to-month battery pack subscription) are in a space to free up main reductions on the associated price of the automobile. It also opens up a brand contemporary recurring earnings stream for the firm.
One other key ingredient for Nio is worldwide expansion. Nio plans to expand into Europe in the 2d half of the year. Despite the pandemic, EV sales in Europe surged 137% in FY2020. With presence in China and doable entry to Europe, Nio can bear in finding entry to to a astronomical addressable market.
In Jan. 2021, Nio also launched its first flagship sedan, the ET7. The sedan will likely be equipped with Nio’s self ample driving capabilities and is more likely to entice client consideration. The impact of the contemporary launch on automobile deliveries will likely be considered in FY2022.
Wall Street Analysts Look Upside Likely In NIO
Consensus among Wall Street analysts on NIO is a Sensible Take hang of rating in step with 7 Buys and 3 Holds. The everyday analyst mark goal of $68.26 implies that the stock is undervalued at contemporary market prices, with approximately 64% upside doable over the next 12 months. Analysts’ mark targets range from a high of $80.30 to a low of $54 a fraction. (Look Nio stock diagnosis on TipRanks)
Nio has forcasted automobile deliveries of between 20,000 to 20,500 for Q1 2021. On a sequential foundation, the firm’s automobile deliveries will therefore proceed to prolong.
If automobile level margin and cash drift proceed to red meat up, NIO is positioned to construction higher in the arriving quarters. Importantly, as working cash flows dawdle, the firm will likely be internally funded for yell.
For now, it makes sense to cease on the sidelines. NIO will likely be exquisite for fresh exposure round $40 ranges.
Disclosure: On the date of e-newsletter, Faisal Humayun did not bear (either straight or one intention or the other) any positions in the securities mentioned listed here.
Disclaimer: The records contained herein is for informational functions only. Nothing listed here needs to be taken as a solicitation to purchase or promote securities.