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A Few Options To Buy NIO At Attractive Valuations

Mar. 10, 2021 4:55 AM ETNIO Inc. (NIO)28 Comments


  • Wall Street's favorite EV stocks are in steep correction territory, and Nio has lost 45% of its market cap in the past month.
  • Projecting 2021 sales, the company may be close to attractive entry levels. I recommend cash secured put options to be able to buy Nio at a reasonable valuation.
  • Nio's execution remains strong with growing production capacity and expanding battery swap network; global chip shortage can cause short-term disruptions.


Chinese electric vehicle manufacturer NIO (Nio) (NYSE:NIO) stock has had quite a run in the past 52 weeks, with 970% appreciation in value. The EV segment has been a Wall Street favorite and is facing aggressive sell-off in recent weeks. With EV adoption at its infancy, I believe the company remains in very early stages of growth and that its growth fundamentals are strong.

NIO stock is down almost 45% from its all-time-high price and is approaching attractive entry points.

Discussing the Valuation

I wrote my first article on the company Nio: Expensive But Plenty Of Growth Ahead a few weeks after I initiated a position in the company. At the time, the company was trading at a 13x sales valuation. I typically don't pay more than 10x sales for a company, no matter how strong the growth story is. At the same time, I am comfortable paying up to 10x sales only if the company's YoY sales growth is close to 40% (my own variation of the rule of 40).

Source: Seeking Alpha

While I believe that the valuation remains stretched, I think it can be justified through the company's growth.

Looking into the company's sales figures, Nio sold 43,728 vehicles in 2020, a 112% increase over the previous year (20,565 vehicles). Total revenue grew 107% YoY and the company projects Q1 2021 vehicle deliveries between 20,000 and 20,500 and quarterly revenue between RMB 7,382.3 million ($1.13 billion) and RMB 7,557.2 million ($1.16 billion).

Nio has already sold 12,803 vehicles in the first two months of 2020 and remains on track to achieve these forecasts.

Source: InsideEV

Extrapolating the Q1 performance to the full year (I believe that is conservative since Nio sales are typically higher in the second half of the year), I am able to forecast annual sales

This article was written by

Hidden Opportunities profile picture
Venkat holds a master’s degree in electrical engineering from Washington University in St. Louis. He is an expert in identifying attractive business models with strong fundamentals. He is currently a management consultant for one of the largest professional services firms in the world. He enjoys identifying opportunities that are significantly discounted with capability to generate outsized cash flows. Venkat's main focus today is on high-yield, and dividend-growth stocks for current income and long-term capital gains. Hidden Opportunities is a proud part of the High Dividend Opportunities research team, the #1 marketplace for income seekers on Seeking Alpha.

Analyst’s Disclosure: I am/we are long NIO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (28)

dxu8888 profile picture
In order for NIO to be a good investment (10% return for 20 years) as EV adoption won't peak for at least 20 years. Then its market cap will need to go from $70 billion now to $470 billion in 2040. Volkswagen plus Toyota today have a valuation around $470 billion . So NIO in 2040 will need to have the sale that Volks + Toyota have today.. if u want to make any 10% a year investing in NIO.

Sounds incredibly optimistic huh?
For Chinese EVs HiPhi Human Horizons possibly even better than Nio
ALT Perspective profile picture
@Hidden Opportunities Many thanks for mentioning my article!
Nick Cox profile picture
the poor sales of Nio in China in the first 2 months of the year and the fast-growing sales of the Model 3,with the Model Y just starting,indicate to me that Nio does not have a good demand base in its home market.
Unless it gets bailed out again by backers (quite likely) it will be in big trouble this year in my opinion.
@Nick Cox You didn't mention Model 3 dropped its price 1/3 in January (after 6 price cuts last year) to $2,6000. The lowest priced Nio is at $60,000. I wouldn't say they are in the same category man.
Nick Cox profile picture
@Narendra Damodardas
$2600 for a Model 3?
I wish....
Whonoz profile picture
@Nick Cox the poor sales in the first 2 months? Context would help there. What does the first two months of car sales historically look like? Did NIO's deliveries do down or up? Bailed out? From what? They have 6.5 billion, increasing sales, increasing margins, subscription autonomous service, signing deals with SINO for battery swapping locations at their gas stations, many other joint deals, etc. They cannot keep up with current demand and have put plans in place to increase production to 300k cars a year within the next two years with an additional 300k capacity in the following two years. While Tesla has a recall for thousands of cars and has been called to meet with several government bodies due to quality control concerns. So what exactly are you basing your opinion on?
Radu Botnari profile picture
Well explained, thank you!
makiko43 profile picture
AFAHM profile picture
If you really believe in a company's future, it does not hurt to own a few shares outright as a core holding. Then if the stock price takes off like a rocket you won't be sitting with a small Put premium, but no shares.
@AFAHM Agree. And the strategy here would be to own the shares outright and sell out of the money covered calls ...at shorter expiration dates than what the author is suggesting (August/September). I'd recommend "monthly" or even weekly expirations ...they pay near 5%/week ...250%/year. Good luck to all.
AFAHM profile picture
@mutsavj I like your thinking! I recently got the NIO 10/15/2021 65.00 C and 70C for $510.00 apiece. It's like getting a dividend from owning a non-dividend payer - perhaps better. There are still some risks, so each investor needs to feel comfortable with this idea, before pursuing it.
@AFAHM That's the exact way I think about it ...like a "dividend". Even those slow growing dividend paying companies slide when the whole market takes a dip, so the risks are equal (kind of ; )
Mr Ak
10 Mar. 2021
Cash secured puts on NIO is solid strategy. A win win imo
I'm all in on NIO. The next Tesla. Get in or get left out.
@Growth2025 I am shorting NIO lol
idaustin profile picture
@Growth2025 aged well
Is investing in XPEV dead money as compared to NIO? Thanks
@kalu0003 Cathy Wood likes XPEV
Mathieu Hamel profile picture
@kalu0003 xpeng is selling in Norway already. I like that they expanding outside of China. Just bought some shares for the long run.
dreamesti profile picture
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