Is Nio's Stock Overvalued Or Undervalued?

Is Nio's Stock Overvalued Or Undervalued?

Nio Inc - ADR NIO shares have lagged the S&P 500 in 2021, generating a year-to-date total return loss of 27.1%.

Nio’s stock has run out of steam in 2021, but value investors may be wondering whether it’s time to buy the dip.

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.

For comparison, the S&P 500’s PE is currently at about 34, more than double its long-term average of 15.9. Nio doesn’t currently have a PE ratio because the company is not profitable. In the most recent quarter, Nio reported a net loss of $659.2 million.

Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.3. Unfortunately, analysts are not expecting Nio to turn a profit over the next four quarters. The current consensus earnings per share estimate for Nio for 2022 is a 12-cent loss. Nio’s consumer discretionary sector peers are currently averaging a 29.5 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 1. Once again, without positive earnings, Nio doesn’t have a positive PEG ratio to use as a valuation gauge.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.14, well above its long-term average of 1.62. Nio’s PS ratio is 13.6, more than four times higher than the S&P 500 average. Nio's PS ratio is also up 840.2% over the last two years, suggesting the stock is still priced at the high end of its historical valuation range.

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Disclosure: © 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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Danger Mouse 4 days ago Member's comment

I agree the $NIO is overvalued but it is also a trending stock.  It seems to have the blessing of Chinese regulators even though it has suffered like most Chinese stocks because of regulators interference and ADA status. The company is expanding into Europe and has already shipped cars to Norway.  It has unique qualities and technology.  It is a high growth stock with a lot of potential and should increase in price.