NIO Inc. (NIO) is one of the stocks most watched by Zacks.com visitors lately. So, it might be a good idea to review some of the factors that might affect the near-term performance of the stock.
Shares of this company have returned -22.2% over the past month versus the Zacks S&P 500 composite’s +3.3% change. The Zacks Automotive – Foreign industry, to which NIO belongs, has gained 1.5% over this period. Now the key question is: Where could the stock be headed in the near term?
While media releases or rumors about a substantial change in a company’s business prospects usually make its stock ‘trending’ and lead to an immediate price change, there are always some fundamental facts that eventually dominate the buy-and-hold decision-making.
Revisions to Earnings Estimates
Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company’s earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.
We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors’ interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
NIO is expected to post a loss of $0.33 per share for the current quarter, representing a year-over-year change of +21.4%. Over the last 30 days, the Zacks Consensus Estimate has changed +2.9%.
The consensus earnings estimate of -$1.23 for the current fiscal year indicates a year-over-year change of +29.7%. This estimate has changed -20.4% over the last 30 days.
For the next fiscal year, the consensus earnings estimate of -$0.81 indicates a change of +34% from what NIO is expected to report a year ago. Over the past month, the estimate has changed +60.7%.
With an impressive externally audited track record, our proprietary stock rating tool — the Zacks Rank — is a more conclusive indicator of a stock’s near-term price performance, as it effectively harnesses the power of earnings estimate revisions. The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #4 (Sell) for NIO.
The chart below shows the evolution of the company’s forward 12-month consensus EPS estimate:
12 Month EPS
Revenue Growth Forecast
While earnings growth is arguably the most superior indicator of a company’s financial health, nothing happens as such if a business isn’t able to grow its revenues. After all, it’s nearly impossible for a company to increase its earnings for an extended period without increasing its revenues. So, it’s important to know a company’s potential revenue growth.
For NIO, the consensus sales estimate for the current quarter of $1.56 billion indicates a year-over-year change of +0.2%. For the current and next fiscal years, $9.58 billion and $15.86 billion estimates indicate +23% and +65.6% changes, respectively.
Last Reported Results and Surprise History
NIO reported revenues of $2.41 billion in the last reported quarter, representing a year-over-year change of +3.4%. EPS of -$0.45 for the same period compares with -$0.51 a year ago.
Compared to the Zacks Consensus Estimate of $2.29 billion, the reported revenues represent a surprise of +5.39%. The EPS surprise was +11.76%.
Over the last four quarters, NIO surpassed consensus EPS estimates two times. The company topped consensus revenue estimates just once over this period.
Valuation
No investment decision can be efficient without considering a stock’s valuation. Whether a stock’s current price rightly reflects the intrinsic value of the underlying business and the company’s growth prospects is an essential determinant of its future price performance.
Comparing the current value of a company’s valuation multiples, such as its price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), to its own historical values helps ascertain whether its stock is fairly valued, overvalued, or undervalued, whereas comparing the company relative to its peers on these parameters gives a good sense of how reasonable its stock price is.
As part of the Zacks Style Scores system, the Zacks Value Style Score (which evaluates both traditional and unconventional valuation metrics) organizes stocks into five groups ranging from A to F (A is better than B; B is better than C; and so on), making it helpful in identifying whether a stock is overvalued, rightly valued, or temporarily undervalued.
NIO is graded D on this front, indicating that it is trading at a premium to its peers. Click here to see the values of some of the valuation metrics that have driven this grade.
Bottom Line
The facts discussed here and much other information on Zacks.com might help determine whether or not it’s worthwhile paying attention to the market buzz about NIO. However, its Zacks Rank #4 does suggest that it may underperform the broader market in the near term.
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NIO Inc. (NIO) : Free Stock Analysis Report