“Share outperformance.” Now there’s a vintage term which on account of the stock market’s woeful action in 2022 might be somewhat forgotten. However, that appears to be the case for NIO (NIO) in recent times. This month, all the main indexes have continued to put in an abject display, but shares of the Chinese EV maker have defied the market and are up ~30%.
Morgan Stanley analyst Tim Hsiao attributes the strong showing to a few key drivers.
First off, Q1’s 18% gross margin might have amounted to a sequential drop of 2.7ppt and took the market by surprise – and not in a good way. However, although Hsiao believes another QoQ 3-4ppt contraction in Q2 is most probably on the way, he thinks the margin trough is nearby. Moreover, the analyst is also of the mind investors have now moved beyond margin concerns with most questions now “focused on volume trajectories by models.” And there’s a way here for investors to get more constructive.
“We believe that if the company can report a solid sales bounce of 11-13k in June, this should help NIO restore investor confidence,” Hsiao opined. “It could also further support the shares ahead of an intense delivery schedule starting from August.”
In fact, while conversations are still expected to center around how strong demand is right now, given a strong line-up which “provides better visibility and predictability,” investors should find NIO intriguing, according to Hsiao.
Even if over the short-term new models are unable to generate positive cash flow, Hsiao believes NIO’s addressable market will be impressed by the “enhanced model bandwidth across segments (sedan, SUV, crossover) and attractive pricing.” And this could provide a boost to NIO’s “competitive position and growth outlook into 2023.”
Accordingly, Hsiao rates NIO stock an Overweight (i.e., Buy), while his $31 price target makes room for one-year growth of 37%. (To watch Hsiao’s track record, click here)
Those are some nice gains, but they pale in comparison to the Street’s expectations; going by the $36.75 average target, shares will climb 62% higher over the 12-month timeframe. Moreover, all the analysts tracking NIO’s progress are bullish, with the stock’s Strong Buy consensus rating based on a unanimous 14 Buys. (See NIO stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
