Despite the mixed quarterly results, New (New York Stock Exchange:NIOThe stock was on the rise after its earnings announcement on September 7. The main factor behind this was a wave of analysts’ stock upgrades at the China-based electric car (EV) maker.
Confidence is growing once again that the company’s increased production will lead to a significant jump in sales for the rest of 2022, and into 2023. But before it decides to jump in and chase its recent rally, there is hardly a lock-in that will result in the next quarter that will live up to today’s high hopes.
The intensification process may still fail to produce results in line with expectations. This may cause the stock to reverse its recent gains. In the long term, Nio’s global expansion may not live up to expectations. With high growth prices skyrocketing, a renewed uptrend may not take much to reverse.
Why did NIO stock soar after earnings
Nio may have outpaced revenue in the second quarter, but the results were hardly anything to get excited about. As expected, China’s epidemic lockdowns continued to slow growth, on an annual basis, and especially on a sequential basis.
Even worse, the electric car maker reported a higher-than-expected net loss. Compared with the previous quarter, net loss per share increased 316.4%. However, rather than respond negatively to second-quarter results, the market has instead focused on the company’s third-quarter outlook, which calls for accelerated growth in reserve.
That sent NIO shares slightly higher right after the earnings, but analyst upgrades sent shares higher. as such Investor Eddie Ban reported on September 12, analysts (Edison Yu of Deutsche Bank, Ming-Hsun Lee of Bank of America) They repeated their “buy” reviews.and raised their price targets.
Both analysts believe that bullish deliveries will accelerate significantly during the fourth quarter. This is due to a combination of increased production, as well as Nio’s release of new car models. However, while the situation may improve, it may not be to the extent indicated by the stock’s recent rally.
How to reverse the latest Uptick
With the buzz back in NIO stock, this may seem like a good time to buy, before the continuing comeback. Unfortunately, there is much to suggest that the recent boom may be short-lived in nature. With it back in excess of $20 per share, the market has now priced the potential for re-acceleration of growth as a near certainty.
For the stock to continue rising, or at least avoid moving lower, Nio needs to meet its third-quarter delivery forecast, as well as reach its fourth-quarter numbers in line with sell-side expectations. Achieving its goal in the third quarter may be possible. Monthly delivery numbers since June have reached over 10,000. Q4, though, may be a longer order.
In order to meet Edison Yu’s estimate for 2022, Nio needs to deliver 57,000 vehicles between October and December. That’s nearly double the expected deliveries in the third quarter.
With increased production, new models, and Chinese government incentivesThis might sound like a saddle. However, other factors, such as the economic slowdown in China, can counter these positives to some extent.
In turn, it caused the delivery numbers for the coming months to be lower than expected. Even if it’s close to being wrong, it could cause the stock to retract its recent gains.
Judging NIO . shares
Nio stock gets a D rating in my country Workbook portfolio. Besides pulling back in the short term, stocks could also continue to underperform in the coming years. Long-term bulls believe the high growth will continue. Even as growth in the domestic market returns, they are confident that international expansion will keep it in a high growth position.
But only time will tell if its first major expansion abroad (in Europe) proves successful. It may face greater competition in China market. In Europe, not only facing the market leader Tesla (NASDAQ:TSLA), but competition from current European luxury brands as well.
Failure in Europe could nullify expansion plans in North America. Without global expansion, it will be difficult for Nio to maintain its current valuation, let alone grow.
Given the downside risks of it failing to materialize in the next quarter, you may not want to follow NIO’s recent stock rally.
Published first on InvestorPlace. I read here.
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