NIO Is A Long-Term Secular Growth Story
If you don’t already own shares of Nio Inc (NYSE:NIO) now is the time to buy some. The stock is about to go ballistic on a perfect-storm of data that points to accelerating demand, production, deliveries, revenue, and profitability. Over the last month, the EV market as a whole has received some very good news and NIO is at the heart of it. As one of China’s leading EV manufacturers, it offers not only growth but exponential growth and exposure to the world’s largest car market.
The melt-up began in late October when it became clear China’s auto market and NIO, in particular, were performing better than expected. The rally accelerated in early November when the company reported a 100.1% increase in YOY deliveries to set a new company record. That news was amplified a few weeks later when China reported auto sales rose 12.5% in October to outpace consensus and led by a 105% increase in EV. Sales were broad across categories but led by the low-end and spurred by China’s decisions to extend its EV incentives. Reports from Li and Xpeng proved the market right so it is no surprise today the NIO beat the consensus estimates.
NIO Zooms Past The Consensus
NIO delivered more than a record number of cars, the company delivered results that put it firmly on track for profitability within the next two quarters. The $667 billion in revenue is a 153% increase from the 3rd quarter of last year, rose 18% from the 2nd quarter of this year, beat the consensus by 800 basis points, and carried through to the bottom line. The GAAP EPS came in at -$0.14 or $0.03 better than expected, a loss to be sure, but one that is due to CAPEX and expansion, not margins. Margins improved from -6.8% in the prior year to 14.5% marking the second quarter of positive operating margin.
“We achieved new record-high quarterly delivery of 12,206 ES8s, ES6s and EC6s in total in the third quarter of 2020, followed by the best-ever monthly deliveries of 5,055 vehicles in October,” says CEO William Bin Li. “In view of the growing market demand for our competitive products, we are motivated to continuously elevate the production capacity to the next level. We expect to deliver 16,500 to 17,000 vehicles in the coming fourth quarter.”
Looking forward, the company’s guidance is aggressive but may turn out too low in light of the market’s strength. The company expects to bring in between $6.26 billion and $6.44 billion RMB or up more than 200% YOY and 1700 basis points better than the consensus, and that’s at the low end. With that in mind, expect the analysts to starting singing a sweet song about this company. The most recent analysts’ actions were price target increases that have shares trading at fair value near $46 but those were issued well before the Q3 earnings release.
The Technical Outlook For NIO Is Very Bullish
The technical outlook is very bullish for at least three reasons but I’ll stick to the ones I know best. To begin with, shares of NIO are in a clear uptrend. In this case, it would be foolish to bet against the market (profit-taking is fine) until bad news and/or a clear bullish signal emerges. I don’t think either of those is likely at this time.
The second is the indicators. Starting with MACD, MACD is not only bullish but it is strong and convergent with the new highs. What makes this signal even better is the fact that MACD is convergent in the near and long-term. Moving on to the stochastic, stochastic is moving lower right now but that’s good. The market is healthy, it’s not overbought, and there is room for the stock to move higher.
In the near-term, price action may show some weakness and if it does I would be a buyer. The risk is that price-action may not accede to my wishes so a small entry at current prices seems prudent (if you don’t already have one). Longer-term, bullish confirmations of the trend including and in particular, a break to new highs above $51 would trigger another entry signal with a possible exit point near $70 or 40% upside.
