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May 25, 2021, 9:55 a.m. EDT

Should you buy Nio stock? The company may be light on profits, but it’s heavy on momentum

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By Jeff Reeves

MarketWatch readers frequently search for news on Chinese electric vehicle upstart Nio Inc. — and for good reason. The dynamic company has been volatile in the last year or so, and each day seems to bring a new set of headlines that have potential to move the stock.

This quarterly review of Nio /zigman2/quotes/204905836/composite NIO -5.18% Inc.’s stock aims to look beyond the latest headlines. We will show comparisons of key metrics to watch and a summary of the company’s most important issues to help investors make better decisions.

These updates will also include comparisons of results to competitors. Keep in mind that no two companies are alike — even rivals don’t compete in every space. Any investor needs to do their own research to make informed long-term decisions.

Where Nio fits in

It’s undeniable that Nio is red hot lately, with a share price that has surged to almost $40 from $3 in early 2020. However, share price is only one reflection of a company’s health.

When you look at the landscape of the most widely traded automaker stocks right now, including traditional manufacturers such as General Motors Co. /zigman2/quotes/205226835/composite GM -0.10% and the EV icon Tesla Inc. /zigman2/quotes/203558040/composite TSLA +0.46% , Nio is decidedly smaller as an actual business. Though its nearly $70 billion in market value puts its stock on par with legacy companies like GM, balance-sheet statistics show the two companies aren’t even close.

This is the fundamental challenge for investors trying to value Nio’s shares. Do you place your emphasis on metrics such as revenue, manufacturing assets and total vehicles sold? Or are you betting on the future state of this dynamic company rather than cold statistics from last quarter that may already be out of date?

Key metrics

Growth is important for Nio investors, and it’s undeniable that the company is seeing an impressive expansion. That’s particularly true over the last year in what was otherwise a fairly hostile environment for car sales.

First, let’s look at operational metrics before we get to the much-followed growth rate in vehicles sold to illustrate how much smaller Nio is than legacy automakers that may be similarly valued by market cap.

Assets and cash

Consider that GM had $238 billion in assets at the end of 2020. Nio didn’t even have $10 billion! What’s more, lest you think this is all attributed to its extensive manufacturing facilities, over $29 billion of GM’s assets were cold, hard cash.

Sales growth

Similarly, the numbers of vehicles Nio has been selling haven’t even been close to those of larger rivals. The company sold just under 44,000 vehicles last year. That compares with nearly 3.4 million vehicles sold for GM and 10.7 million for Toyota Motor Corp. /zigman2/quotes/200537742/composite TM +0.29% across all its brands.

Of course, this lower base means more potential to many investors rather than a reason to be scared away from Nio’s stock. During the first quarter, Nio sold five times as many cars as it did in the same period a year earlier. That growth rate blows the doors off everyone, even Tesla.

And just as the total number of vehicles increased dramatically, so naturally did Nio’s top line. But as we will see, that uptick in revenue has yet to translate to significant profits.

Pricing power and profitability

/zigman2/quotes/204905836/composite
US : U.S.: NYSE
$ 44.10
-2.41 -5.18%
Volume: 61.39M
June 22, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$72.98 billion
Rev. per Employee
N/A
loading...
/zigman2/quotes/205226835/composite
US : U.S.: NYSE
$ 59.24
-0.06 -0.10%
Volume: 8.93M
June 22, 2021 4:00p
P/E Ratio
9.58
Dividend Yield
0.00%
Market Cap
$86.02 billion
Rev. per Employee
$790,226
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/zigman2/quotes/203558040/composite
US : U.S.: Nasdaq
$ 623.71
+2.88 +0.46%
Volume: 19.16M
June 22, 2021 4:00p
P/E Ratio
624.27
Dividend Yield
N/A
Market Cap
$598.06 billion
Rev. per Employee
$445,694
loading...
/zigman2/quotes/200537742/composite
US : U.S.: NYSE
$ 179.39
+0.51 +0.29%
Volume: 237,921
June 22, 2021 4:00p
P/E Ratio
11.92
Dividend Yield
2.21%
Market Cap
$244.54 billion
Rev. per Employee
N/A
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