<p>After equities peaked above $ 5 per share in January 2020, Nio (NYSE: NIO) attempted to sell investors on February 14. The news arranged a second financing agreement. The total sum of $ 200 million the company buys some time and will keep it from bankruptcy. But with weak delivery figures in January, is it too risky for investors to speculate in this electricity supplier? China continues to fight a virus outbreak. Consumers have no mood to buy expensive items like one of Nio’s cars.
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In December, Nio reported a net loss of $ 352 million. It had $ 1.2 billion in debt. With $ 274 million in cash and cash on hand, $ 200 million in financing will give the company enough room to revalue operations. Buyers of the convertible banknotes can convert them to $ 3.07 per share as early as six months after the issue date.
When Nio share trading exceeds the convertible price, the sales pressure can pick up speed in the short term. The few analysts who have a forecast for Nine have an average price target of $ 6.88. Still, analysts have not updated their views on the company in the past month. A valuation of the Nio share is less optimistic. Nine has a valuation point which, based on a high price / sales ratio and negative result, is lower than the industry’s and S&P 500.
Nio Industry S&P 500 Value Points 8 66 74 Price-to-profit N / A 11.8 25.5 Price-to-sale 4.3 0.5 2.4
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Investors looking for exposure in the automotive or EV market can buy Tesla (NASDAQ: TSLA) or General Motors (NYSE: GM) instead. These companies have a better growth point than Nio.
Nine have intelligent employees. The management is clear in its goals for growing deliveries. It has three specific items within its sales strategy. First, it will continue to improve its products and services. Second, it will encourage its customers to be brand ambassadors. And third, it will focus on expanding its sales network.
For Q4, the company said it expects deliveries to exceed 8,000 vehicles. This is 67% higher in a row from the third quarter of 2019. At its conference call during the third quarter, Nio was conscientious with its limited budget. CFO Steven Feng said that “we expect that R&D efficiency will improve significantly and that R&D costs will be further reduced by 2020.”
The number of employees in 2019 started at about 9,900. It dropped to about 7,500. So with a narrower team, Nio will burn less cash by 2020. It must. Last month, it published a weak 1,598 deliveries, consisting of 1493 ES6 models and only 105 ES8 models. This is a decrease of 11.5% from last year. The decline is due to the Chinese New Year holidays falling in January. And of course, the new coronavirus had a negative impact on sales.
Nine predicted a production decline for this month, which is another headwind for the Nio share. This time last year, the company had top sales. But as the Chinese government postpones people from returning to work, expect sales this quarter to miss estimates. Before the slowdown, Nine had production orders that reached over 100 daily. This positive momentum is likely to end temporarily.
During the third quarter, Nio sold all its ES8 models and had no stock left. Although sales of this model may fall in one or two quarters, it will recover once China has controlled the outbreak. The launch of a new coupe model is promising. The management said that the smart coupe SUV, EC6, will start delivery in September.
My Takeaway at Nio Stock
Investors can predict that Nio will report revenues growing by at least 33% over the next five years in a discounted cash flow. Assume further the following:
Measured value Range Conclusion Discount rate 7% -8.5% 7.7% Perpetual growth 3.5% -4.5% 4% Fair value 2.46 $ 7.29 $ 4.16
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At a conservative growth rate of 4%, the Nio share is worth at least $ 4.
Chris Lau is a contributing author to InvestorPlace.com and many other financial websites. Chris has over 20 years of investment experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace at Seeking Alpha. He shares his stock choices so that readers get original insights that help improve return on investment. At the time of writing, Chris Lau had no position in any of the above securities.