NIO Stock: What Can You Expect from Its Q3 Earnings?

China-based electric vehicle manufacturer NIO (NYSE: NIO) will be announcing its results for the September quarter on November 17, after the market closes. NIO stock has been on absolute tear in 2020 and has returned a staggering 1,300% year-to-date, easily crushing the indices such as the S&P 500.

This means a $1,000 investment in NIO at the start of 2020 would have been worth $14,000 today.

 

NIO has been a leader in China’s EV market

NIO has been a pioneer in China’s premium electric vehicle (EV) market. The company designs, manufacturers and sells smart and connected EVs. Its first model known as the EP9 supercar was introduced in 2016 and this automobile soon helped NIO to position itself as a premium brand.

NIO sells its vehicles via its own sales network that includes a mobile application platform as well as NIO houses. The company claims that NIO Houses are not just showrooms for its vehicles but also include clubhouses integrated with multiple social functions. Further, the mobile application helps to increase user engagement and cultivate brand loyalty.

 

Analysts expect sales to grow 150% in Q3

Wall Street analysts tracking NIO stock expect sales in the September quarter to grow by 149.7% year-over-year to $655.3 million. Its adjusted loss per share are forecast to improve to $0.17 compared with a loss of $2.38 in the prior-year period.

NIO has beaten analyst earnings estimates in three of the last four quarters which has helped it deliver outsized gains to investors over the last year.

In Q3, NIO’s vehicle deliveries surged 154% year-over-year to 12,206. While the company’s deliveries were down in July driven by a shortage in spare parts, it bounced back strongly in the next two months.

The company has been able to leverage its stellar growth in its stock price and raised $1.7 billion in Q3 by selling 88.5 million shares, indicating an average price of $19.2 per share.

 

What next for NIO stock?

NIO stock has had a tremendous run this year especially when you consider it was close to bankruptcy in early 2020. The company is valued at a market cap of $62 billion indicating a forward price to sales multiple of 27x which is sky-high.

While sales are forecast to more than double in 2020 and grow by a further 79% in 2021, NIO will still be unprofitable in the next few quarters. Wall Street believes the stock to be massively overvalued and has a 12-month average price target of $23.2 which is almost 50% below the current price.

In case NIO misses estimates in Q3 or provides a less than impressive outlook, investors can expect the stock to correct significantly in after-hours trading.

NIO has enough liquidity to build out a robust distribution network and increase investments to launch upcoming models as well.

Further, China is one of the largest EV markets in the world making NIO a solid long-term bet. In case the stock collapses by the end of 2020, it will provide investors with an opportunity to buy a high-growth stock with multiple secular tailwinds at a lower valuation.

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Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.