NIO stock could be retorted if there is even a little bit of disappointment

After analyst upgrades, Nio (NIO stock has returned to $20 per share

Shares in China’s EV manufacturer could easily lose these gains despite renewed bullishness.

You may want to avoid this rally due to the risk of Nio not delivering.

Despite mixed quarterly results (NYSE:NIO), Nio stock has seen a rise since its Sept. 7 earnings report. This is due to a series of analyst upgrades that have led to a surge in shares in the China-based maker of electric vehicles (EVs).

The company’s production ramp up is causing optimism to rise again. This will lead to a significant jump in sales through 2022 and beyond. But before you jump in and chase the rally’s recent rally, it’s not a guarantee that the next quarter’s results will live up to your high hopes.

It is possible that the ramp-up will not produce the expected results. The stock could lose recent gains. Long-term, Nio’s global expansion may not be as strong as expected. It may not take long for today’s renewed bullishness, which is heavily priced in because of this.

NIO Stock Surging Post-Earnings

Although Nio beat the revenue target for the second quarter of 2018, the results are not much to be excited about. As expected, China’s pandemic shut downs continued to slow growth year-over-year and particularly sequentially.

The EV manufacturer reported a worse-than-expected net income. Net losses per share increased by 316.4% compared to the previous year’s quarter. The market remained positive and focused on Q3’s outlook, which called for a acceleration of growth.

NIO stock saw a slight increase in trading right after earnings, but analysts upgraded sent shares skyrocketing. InvestorPlace’s Eddie Pan reported Sep 12 that two analysts (Deutsche Bank’s Edison Yu and BofA’s Ming-Hsun Lee), have reaffirmed their “buy” ratings and raised their price targets.

Both analysts believe deliveries will accelerate significantly in Q4. This is due to both the production ramp up and Nio’s new vehicle models. Despite the fact that the situation is improving, it could not be as good as the stock’s recent spike.

The Latest Uptick in Its Performance Could Be Reversed

It may appear that NIO stock is now the right time to invest, as there’s a lot of buzz surrounding it. There are many signs that this latest surge in shares may not be sustainable. The market now sees a potential growth re-acceleration as near-certainty after the stock’s move above $20 per share.

To keep the stock moving higher or to avoid falling lower, Nio must both meet its Q3 deliveries forecast and hit the Q4 numbers that are in line with expectations of the sell side. It may be possible to hit its Q3 target. Since June, its monthly delivery numbers have topped 10,000. However, Q4 may be a higher order.

To meet Edison Yu’s 2022 target, Nio must deliver 57,000 vehicles between December and October. This is almost double the Q3 delivery forecast.

This may seem easy with increased production, new models and Chinese government incentives. These positives could be countered by other factors like China’s slowdown in economic growth.

This can lead to delivery numbers that are lower than expected for the months ahead. It may result in the stock losing some of its gains, even if it is a close miss.

The Verdict on NIO Stock

My Portfolio Grader gives Nio stock a D rating. Shares could continue to perform poorly in the future, in addition to pulling back in short-term. Bulls who are long-term investors believe that high growth will continue. They are optimistic that the country will continue to grow even as it experiences a slowdown in growth in its domestic market. However, international expansion is expected to keep it in high growth mode.

It will be interesting to see if its first major expansion outside of China (in Europe) is a success. It could face more competition in China. It faces competition from European luxury brands, including Tesla (NASDAQ:TSLA), which is the market leader in China.

It may abandon its plans for North American expansion if it fails to succeed in Europe. It will be hard for Nio, or any other company, to maintain, let alone grow, its current valuation without global expansion.

You may want to avoid the NIO stock rally because of the risk that it might not deliver the next quarter.