How to play NIO stocks after another disappointment

<p>I still have high hopes for Nio (NYSE: NIO) in the long run. But no matter how much I want to buy Nine shares, the company has consistently given me reason after reason to stay away.

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The latest bad performance came last week when shares tumbled again after a weak earnings report for the fourth quarter. Here’s a closer look at the figures for the fourth quarter, a summary of why investors should be careful with the stock and my opinion on how to play it from here.

Nine reported $ 409.1 million in revenue in the fourth quarter, an increase of 55.1% compared to the third quarter but a decrease of 17.1% compared to a year ago. Nine also reported an adjusted loss of $ 404.1 million, up from $ 344.6 million in the third quarter, but down from $ 465.6 million as it reported a year ago.

That net result translated into a non-GAAP loss of 39 cents per US depository receipt, which is wider than the 26-cent loss analysts had expected. Revenues were slightly higher than consensus analysts.

Nio’s cash is much more important for the share’s immediate prospects. Cash and cash equivalents were $ 151.7 million, down from $ 274.3 million a quarter ago.

Nine reported 8224 beetle deliveries during the fourth quarter, compared to 7,980 a year ago. Full-year deliveries of 20,565 increased by 81.2% compared with 2018.

Unfortunately, the COVID-19 outbreak has made Nio’s 2020 numbers look bleak. Nine reported a decrease of 11.5% in deliveries in January and a decrease of 12.8% in February deliveries. In fact, Nio delivered just 707 vehicles in total last month.

Throughout the first quarter of 2020, Nine deliveries guided between 3400 and 3600, a decrease from 3989 deliveries a year ago. Nine also guided $ 173.7 million in revenue, down from $ 243.1 million a year ago.

Nio’s financial problems continue

In a nutshell, investors got more of the same last week. It was no surprise that guidance for the first quarter was weak given the outbreak, but that does not excuse losses that are larger than expected in the fourth quarter. Nio is a cash incinerator. Unfortunately, its growth has dried up in recent quarters, leaving a stagnant company bleeding money.

In its revenue report, Nio said it raised $ 435 million in diluted private placements in February and March. Once again, Nio has come up with means to keep the lights on. At the revenue call, management said they are making efforts to reduce costs, improve efficiency and increase their cash flows. Again, more of the same.

Since the beginning of 2019, Nio has raised $ 1.28 billion in financing, all of which came at a steep price for shareholders. In February, Nio announced a vague $ 1.42 billion “cooperation framework agreement” with the Hefei municipal government, Anhui China. As part of the agreement, Nio said it “will establish NIO China’s headquarters, further expand its operations and deepen its relationship with local ecosystem partners in Hefei, whatever that means.

Nio’s latest round of fundraising came after reports that employees’ paychecks were recently delayed due to funding issues.

More problems ahead

Anyone who has not lived under a rock in the past month knows that it is not time for a weak balance sheet. Nine has one of the weakest on the market.

Bank of America analyst Ming Hsun Lee says Nio’s expectations that vehicle margins will be positive in the second quarter of 2020 are a positive sign that business fundamentals are improving. Management also said they expect battery costs and other component costs to continue to decline throughout the year.

But considering that Nio mainly lives paycheck to paycheck until it shows a viable, profitable business model, Lee says he can not recommend the stock.

“We believe that NIO’s foundations have bottomed out, and the current valuation looks fair to us,” he says.

Bank of America has a “neutral” rating and a $ 3.30 price target for NINE stocks.

Bank of America estimates $ 1.29 billion in net losses in 2020 and $ 1.07 billion in net losses in 2021. It also estimates that Nio will not approach a positive free cash flow for at least another two years.

How to play NIO Stock

Looking five years or more ahead, I still want to believe that a market leader in electric cars in China is a fantastic investment opportunity. The question is how much it will cost investors to do so in the next few years.

Nine has enormous long-term potential as an investment. But in an extremely high-risk market, NIO stocks may be among the highest risks right now.

Wayne Duggan has been a US News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book “Beating Wall Street With Common Sense”, which focuses on investment psychology and practical strategies to surpass the stock market. At the time of writing, Wayne Duggan does not hold any position in any of the above securities.