Electric vehicle (EV) maker NIO (NYSE: NIO) saw its stock soar in 2020, and then peak in February 2021 at $64.60. But since that high point, the NIO share price slumped to just $24.51 by the end of January 2022. That’s a 12-month fall of 57%, with a drop of 22.6% in January alone. To put it into perspective, though, we are still looking at a gain of 150% since IPO.
NIO isn’t the only company in the EV market to suffer in 2022. No, it’s better known sector fellow Tesla Motors has been tumbling too. From a 52-week high of $1,243 in November, Tesla stock fell around 25% by the end of January. Part of that must be down to a slowing of Tesla’s rollout of new models, and a cooling of Nasdaq stocks in general.
One thing does make NIO rather tricky for investors to put a valuation on. And that is its lack of profits. Sales forecasts look impressive though, with some analysts suggesting the firm’s sales could reach close to $10bn in 2022. Is that realistic, and what will sustainable profit figures look like? Not knowing the answers to those makes NIO look like a risky investment to me at the moment.
Still, it’s building a new manufacturing facility, so we’re going to see capacity growth. And those sales predictions might well come good.
NIO share price valuation
We can get a better idea of valuation in the sector by examining Tesla. That firm is in profit, and that means it has a meaningful P/E ratio to go on. Right now, on today’s Tesla share price, we’re looking at a hefty multiple of 190 on a trailing 12-months basis. And that’s after the shares have fallen back from their peak. Had they remained up there, we’d be looking at a trailing P/E of over 250.
A part of the NIO share price fall, then, looks like it might simply be a bit of valuation reassessment. It happens a lot with growth stocks, particularly high tech ones. And bearish spells can be triggered by early investors deciding to pocket a bit of their profits.
Price-to-sales comparison
How do the valuations of these two EV manufacturers compare? Though we don’t have profits at NIO to examine, we can look at sales-based valuations. My colleague Rupert Hargreaves at The Motley Fool has calculated an estimated price-to-sales ratio of around 3.3 for NIO. That’s based on a market cap of $33bn at the end of January, and $10bn of sales in 2023. Tesla’s comparative measure stands close to 16.
Why is NIO valued apparently so lowly compared to Tesla? Part of the reason must surely be the company’s Chinese base. Investors, particularly Western ones, tend to see a lot more safety in companies based in the US. The greater trust in US regulators does seem justified to me. We’ve already seen Chinese regulators squeezing US-listed stocks, and that must surely have hurt the NIO share price.
The risks put me off buying NIO shares, even though I suspect they might turn out to be good value now. But I’ll definitely keep watching.
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesla. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
