Long-established in the Vehicles & Parts industry, NIO Inc (NYSE:NIO) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 11.3%, juxtaposed with a three-month change of 1.15%. Fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of NIO Inc.
Decoding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Financial strength rank: 4/10
Profitability rank: 1/10
Growth rank: 0/10
GF Value rank: 4/10
Momentum rank: 7/10
Based on the above method, GuruFocus assigned NIO Inc the GF Score of 52 out of 100, which signals poor future outperformance potential.
Understanding NIO Inc's Business
Nio is a leading electric vehicle maker targeting the premium segment. Founded in November 2014, Nio designs, develops, jointly manufactures, and sells premium smart electric vehicles. The company differentiates itself through continuous technological breakthroughs and innovations such as battery swapping and autonomous driving technologies. Nio launched the first model, its ES8 seven-seater electric SUV in December 2017, and began deliveries in June 2018. Its current model portfolio includes midsize to large sedans and SUVs. It sold over 122,000 EVs in 2022, accounting for about 2% of the China passenger new energy vehicle market.
Financial Strength Breakdown
NIO Inc's financial strength indicators present some concerning insights about the company's balance sheet health. NIO Inc has an interest coverage ratio of 0, which positions it worse than 0% of 986 companies in the Vehicles & Parts industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Scoreis just 0.93, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.96 indicates a struggle in handling existing debt levels.
NIO Inc's low Profitability rank can also raise warning signals. With a Piotroski F-Score of 2, NIO Inc's financial health appears concerning. This score, rooted in Joseph Piotroski's nine-point scale, evaluates a firm's profitability, liquidity, and operating efficiency. Given its rating, NIO Inc might be facing challenges in these areas.
A lack of significant growth is another area where NIO Inc seems to falter, as evidenced by the company's low Growth rank.
Given NIO Inc's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While the company has made significant strides in the electric vehicle market, its financial indicators suggest that it may struggle to maintain its momentum. As value investors, it's crucial to consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
This article first appeared on GuruFocus.