Good news for (new) Nio (NIO +5.45%) stock investors! Yesterday, Nio announced its first-quarter 2024 earnings results, and Nio stock promptly sold off. Shares of the Chinese automaker are down more than 8% since earnings came out. That means that -- as long as you think Nio stock is a buy -- the stock is now selling at a discount.
And according to Citigroup analyst Jeff Chung, this is exactly how you should be looking at this news.
NYSE: NIO
Key Data Points
Is Nio stock a buy?
Nio reported delivering just over 30,000 automobiles in Q1 2024, a 3% decline year over year -- which obviously isn't a great way to start off an earnings report. Revenues declined 7%, and the company reported a net loss of $718 million. Those obviously aren't great ways to continue an earnings report.
Yet, according to Chung, not only is Nio stock a "buy," it's actually a stock worth $10.40 per share, more than twice its current $4.83 (Friday close) share price. Now why would Citi's analyst go and say something like that?
Well, consider the good news mixed in with all the bad: The profitability of Nio's electric vehicles increased significantly year over year, rising 410 basis points to 9.2%. Total gross profit margins across the company's several businesses (including, for example, battery charging and battery swap-outs) more than tripled to 4.9% (a 340-basis-point increase). Sales volumes also seem to be growing much faster now than they were, with delivery volumes up by about a third between April and May.
While Chung lamented that Nio will probably continue losing money in the second quarter, he noted that with the sales momentum, Nio will probably exceed analyst expectations for deliveries this quarter, selling about 56,000 cars -- and at continually improving gross profit margins, rising to about 8%.
That may not sound like much, but 8% isn't that far below Ford's (F +0.91%) 8.6% gross margin. Nio is growing from a far smaller revenue base, and its stock has the potential to outperform.
