A Nio eP9 car
Hector Retamal/AFP via Getty Images
CLSA analyst Soobin Park cut her price target on shares of Chinese electric vehicle maker NIO on Wednesday to $35 a share from $60. It’s a big cut, but she remains bullish on the company, rating the stock at a Buy.
The price target was reduced because that’s what happens when market prices for any stock change. Analysts’ price targets can typically be interpreted one of two ways. They can represent the price an analyst expects the stock to trade at over the coming year, or they can represent the price an analyst would pay for a stock to earn a fair return out into the future.
NIO (ticker: NIO) stock has hit a rough patch. Shares have fallen about 19% year to date, have declined about 57% over the past year and are down about 59% from their 52-week high set a year ago on Feb. 16, 2021, when they touched $61.14 a share.
Shares are probably down for a few reasons including starting valuation. NIO is valued like a growth stock. It was trading at about 15 times estimated 2021 sales a year ago. Rising interest rates have cooled off investor sentiment. Growth companies generate most of their earnings and free cash flow far in the future. Future cash and earnings are worth less today as rates rise.
Whatever the reason, analysts adjust targets when prices change. A year ago, the average analyst price target for NIO stock was about $65 a share. Today, it’s $54 a share. The price target has come down $11 even as analysts have become more bullish on the stock.
A year ago, about 65% of analysts covering the stock rated shares Buy. Today, more than 90% of analysts rate shares Buy. They have used price declines to upgrade shares.
The average Buy-rating ratio for stocks in the S&P 500 is about 58%.
The cut isn’t doing much to NIO stock. Shares were down about 0.5% in Wednesday trading. The S&P 500 and Dow Jones Industrial Average have both declined about 0.6%.
Write to Al Root at [email protected]
