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NIO Cashed Out at the Top; Analyst Weighs In

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Several corners of the stock market have been particularly frothy in 2020, among them the electric vehicle segment. Investors’ insatiable appetite for EV stocks has sent share prices sky high and hardly any more so than Nio’s (NIO); throughout the year, the stock has added 919% of muscle to its name.

After such a run up, the company has evidently decided to put the share gains to good use.

Last week, Nio announced an equity offering of 60 million new American depositary shares, with an option for an additional 9 million. At the current share price, the initial offering could land Nio an extra $2.5 billion.

The company has said the proceeds will go toward various purposes, including the development of new products and self-driving tech and expanding its sales force.

According to Deutsche Bank analyst Edison Yu, the move has less to do with the need to pad the coffers but more about using the current market conditions to its advantage.

“NIO does not need the cash considering it exited 3Q with nearly $3bn but saw this as an opportunistic time given the stock's run (+155% in the past 3 months vs. S&P 500 10%) and generally favorable investor sentiment. While the overall group has pulled back from its recent highs, we continue to believe this was a needed sanity check given valuations and a flood of issuance coming from EV-related SPACs,” Yu opined.

Overall, Yu believes “competitive dynamics” in the Chinese EV industry, are “intensifying.” Nio’s efforts to gain market share appear to be paying off.

Based on the company’s growing brand awareness, indicated by a 62% customer referral rate this year compared to 52% in 2019, and “production ramping up to 7.5k/month in January,” the analyst anticipates “continued record sales heading into the Chinese New Year.”

Accordingly, Yu reiterates a Buy rating on NIO shares along with a $50 price target. The implication for investors? Upside of 22%. (To watch Yu’s track record, click here)

Yu’s projection is roughly in line with the one made by the majority of Wall Street’s analyst corps. At $49.01, the average price target suggests upside of 17% in the year ahead. The stock has a Moderate Buy consensus rating, based on 7 Buys and 4 Holds. (See Nio stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.