General Beware! The NIO Stock Surge of the Moment will be...

Beware! The NIO Stock Surge of the Moment will be short-lived

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NIO stock could be put back on the wrong side of the tracks by even a tiny amount of disappointment

Nio (NIO), stock is back at $20 per share following analyst upgrades

The renewed bullishness in shares of the China-based maker of EVs could easily reverse these recent gains, despite the fact that they are still trading at a premium.

This rally is not worth your time due to the possibility of Nio failing to deliver.

Despite mixed quarterly results Nio (NYSE.NIO) stock has been rising since the Sept. 7 earnings release. A spate of analyst upgrades has been the main reason for this surge in shares of Nio (NYSE:NIO), a Chinese-based electric vehicle maker.

There is renewed optimism that the company’s production rampup will result in an increase in sales through 2022, and into 2023. However, before you rush to join the party and chase its rally, it is not certain that the results of this quarter will live upto today’s high expectations.

It’s possible that the ramp up will still not deliver results as expected. This could cause stock gains to be reversed. Nio’s long-term global expansion could be slower than expected. High growth is highly priced in so it won’t take much for today’s renewed bullishness not to reverse.

NIO Stock has risen after earnings

While Nio may have beaten the market in revenue for the second half, the results were not very exciting. As expected, China’s pandemic shutdowns continued the slowdown in growth on a year over year basis and especially on a sequential level.

Even worse, the EV manufacturer reported a larger-than-expected loss. The net loss per share was up 36% compared to the quarter prior. However, rather than reacting negatively to Q2’s results, the market instead focused on the company’s outlook for Q3, which calls out for a faster return to growth.

NIO stock experienced a slight rise in earnings but shares went up after analyst upgrades. InvestorPlace’s Eddie Pan reported September 12 that two analysts, Edison Yu from Deutsche Bank and Ming-Hsun Lee at BofA, have renewed their “buy” ratings and increased their price targets.

Both analysts are positive that deliveries will rebound significantly during Q4. This is due to the combination of production ramp-up and Nio’s recent launch of new vehicles models. The stock’s latest spike may indicate that things are improving.

How it could reverse its latest uptick

NIO stock buzz is returning, suggesting that it’s now a good time to purchase, in anticipation of a continuing comeback. However, it seems that the market’s latest surge could be temporary. Its return to $20 per share has led the market to price in a possible acceleration of growth as a near certainty.

Nio must meet its Q3 delivery projections and achieve Q4 numbers consistent with the sell-side’s expectations in order for the stock to continue moving higher. Perhaps it is possible to meet its Q3 targets. Since June, the monthly delivery figures have been above 10,000. But Q4 might be a more difficult order.

Nio will need to deliver 57,000 vehicles between October-December in order to meet Edison Yu’s 2022 estimates. This is nearly twice the number of vehicles Nio needs to deliver in Q3

This could seem easy, with new models, increased production and Chinese government incentives. Other factors, such as China’s economic slowdown could counteract these positives.

It can also cause delivery numbers to fall below expectations for the months ahead. Even though it’s not a complete miss, it could cause stock to lose its gains.

The Verdict on NIO stock

My Portfolio Grader rates Nio stock as a D. Stocks may continue to perform poorly over the next few years, besides pulling back in the near-term. Long-term bulls are confident that the country will see continued high growth. They believe that even though the economy is growing in its home country, it will remain in high-growth mode due to international expansion.

However, only time will show if the first significant expansion in Europe (outside China) is successful. It might face stronger competition in China. It is not only facing competition from Tesla (NASDAQ :TSLA), the European market leader, but also incumbent luxury brands in Europe.

It could fail in Europe and endanger its North American expansion plans. Nio will not be able to grow its current valuation without global expansion.

The downside risk of it not delivering in the next quarter is why you might not want to follow the NIO stock rallies.

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