NIO Stock a 'Strong Buy' Despite Near-Term Headwinds

NIO recently cut its 1Q2023 delivery forecast by 3% amid softening EV demand in China, causing its stock price to fall to new lows below $5.

However, the author believes NIO is undervalued, citing its price/sales ratio of just 0.98x based on 2024 sales estimates, far below competitor XPeng's 1.4x ratio.

NIO's gross profit more than doubled year-over-year in 4Q2022 to $180 million, and its margins of 7.5% also top XPeng's 6.2%. This indicates an improving financial profile.

The author expects NIO deliveries to rebound after a slow 1Q, noting they jumped 61% from 1Q2022 to 4Q2022. Chinese New Year skews 1Q numbers lower across EV makers.

With NIO shares at their most compelling valuation in years, the author rates the stock a Strong Buy, seeing favorable risk/reward even accounting for near-term delivery volatility.