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Wondering if NIO at around $4.86 is a bargain in the making or a classic value trap? This breakdown will walk you through what the numbers are really saying about the stock.
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Despite being up 6.8% year to date and 12.5% over the last year, NIO has dropped 3.4% in the past week and 20.1% over the last month, so recent volatility is forcing investors to reassess both its upside and its risks.
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Recently, NIO has been in the headlines for its ongoing push into premium EV models, fresh partnerships around battery swapping infrastructure, and new financing moves that aim to shore up its balance sheet and fund expansion. At the same time, renewed scrutiny on Chinese EV makers and policy developments in key markets have kept sentiment swinging between cautious optimism and concern.
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Right now, NIO scores a 3/6 valuation check score, which suggests the market may be underestimating it on some measures but not across the board. Next, we will unpack those valuation methods before exploring a more powerful way to think about what NIO is really worth.
A Discounted Cash Flow model estimates what a company is worth by projecting its future cash flows and then discounting them back to today, to reflect risk and the time value of money.
For NIO, the latest twelve month free cash flow (FCF) is deeply negative at around CN¥19.7 billion, reflecting heavy investment and operating losses. Analysts expect FCF to improve meaningfully over time, with projections turning positive and rising to about CN¥21.2 billion by 2035, based on a two stage free cash flow to equity model. Estimates up to around 2029 are informed by analyst forecasts, while later years are extrapolated by Simply Wall St using gradually slowing growth assumptions.
Discounting these future CN¥ cash flows back to today produces an estimated intrinsic value of about $6.35 per share. Compared with the current share price near $4.86, the DCF indicates NIO is roughly 23.4% undervalued, which suggests the market is pricing in a more pessimistic trajectory than this cash flow path assumes.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests NIO is undervalued by 23.4%. Track this in your watchlist or portfolio, or discover 915 more undervalued stocks based on cash flows.
For many early stage or unprofitable businesses, sales based metrics are often more useful than earnings based ones, and that makes the price to sales ratio a sensible way to compare how the market is valuing NIO relative to its revenue base.
In general, investors are willing to pay a higher sales multiple for companies with stronger growth prospects and lower perceived risk, while slower growth or higher uncertainty usually translates into a lower, or discounted, multiple. With NIO trading at about 1.29x price to sales, it sits above the Auto industry average of roughly 0.72x but below the peer group average near 1.71x. This suggests the market is pricing in better prospects than the typical automaker but more caution than for some direct EV peers.
Simply Wall St’s Fair Ratio for NIO is around 1.10x, a proprietary estimate of what its price to sales multiple should be once you factor in its growth outlook, profitability profile, risk, industry positioning and size. Because this Fair Ratio explicitly blends these fundamentals, it can be more informative than a simple comparison with peers or the industry. On this basis, NIO’s current 1.29x multiple screens as modestly expensive versus fair value.
Result: OVERVALUED
PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1454 companies where insiders are betting big on explosive growth.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simple, story driven forecasts where you spell out how you think a company like NIO will grow its revenue, earnings and margins, link that story to a financial forecast, and arrive at your own Fair Value that you can easily compare with today’s share price to inform your decision.
On Simply Wall St’s Community page, millions of investors use Narratives as an accessible tool that stays up to date as new news, earnings and guidance flow through. Their Fair Value estimate automatically adjusts with the latest information rather than staying frozen in a static model.
For NIO, one investor with a more optimistic view might build a Narrative around rapid global expansion, improving chip licensing income and margin recovery that supports a Fair Value closer to the optimistic 9 dollars target. A more cautious investor could assume slower EV adoption, sustained competition and thinner margins that anchor their Fair Value nearer the 3 dollars low end. Both perspectives are made transparent through their underlying assumptions, not just a single headline number.
Do you think there’s more to the story for NIO? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include NIO.
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