NIO Inc. (NIO) has been one of the most searched stocks on Zacks.com recently, so it is advisable to take a look at some facts that could shape the stock's performance in the near term.
Shares of this company have returned -9.5% over the past month, which contrasts with a +3.2% change for the Zacks S&P 500 composite index. The Zacks Automotive – Foreign industry, which NIO belongs to, has lost 2% in that same period.The big question here is, where is this stock headed in the near term?
Media announcements or rumors of significant changes in a company's business outlook will usually make the stock “trend” and cause immediate price movements, but there are always some fundamental facts that ultimately drive the buy-and-hold decision.
Earnings forecast revision
At Zacks, we prioritize evaluating the changes in a company's earnings estimates over other factors because we believe the fair value of a stock is determined by the present value of its future earnings stream.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings forecasts in light of the latest business trends. When a company's earnings forecast goes up, the fair value of its stock also goes up. And if a stock's fair value is higher than its current market price, investors are more inclined to buy the stock, resulting in an increase in its share price. For this reason, empirical research shows a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
For the current quarter, NIO is expected to post a loss of $0.46 per share, which would represent a +9.8% change from the year-ago period. The Zacks Consensus Estimate has remained unchanged within the past 30 days.
The consensus revenue estimate for the current fiscal year is -$1.43, indicating a change of +18.3% year over year. This estimate has changed -1.2% over the past 30 days.
Looking at the next fiscal year, the consensus earnings estimate is -$1.03, which represents a +28.1% change from what NIO was expected to report a year ago. Over the past month, estimates have changed +28.5%.
The Zacks Rank, our proprietary stock rating tool with a strong outside-audited track record, effectively harnesses the power of earnings estimate revisions to provide a more certainty view into near-term stock price direction. The magnitude of the recent change in consensus estimates, along with three other factors related to earnings estimates, have earned NIO a Zacks Rank #4 (Sell).
The story continues
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Revenue Growth Forecast
Revenue growth is arguably the best indicator of a company's financial health, but if a company can't grow its revenue, then nothing happens. After all, it's nearly impossible for a company to grow its revenue over the long term without growing its revenue. Therefore, it's important to know a company's revenue growth potential.
For NIO, the consensus revenue estimate for the current quarter is $2.35 billion, indicating a change of +94.5% year-over-year, while estimates for the current and next fiscal years are $9.17 billion and $15.26 billion, indicating changes of +17.8% and +66.4%, respectively.
Last reported results and surprise history
NIO reported revenue of $1.37 billion for the most recent quarter, down -11.7% compared to the same period last year. EPS was -$0.36 for the same period, compared to -$0.42 in the same period last year.
Compared to the Zacks Consensus Estimate of $1.48 billion, reported revenues represented a surprise of -7.42%. EPS surprise was -16.13%.
Over the last four quarters, NIO has beaten EPS estimates two times. The company topped revenue estimates just once during that period.
evaluation
No investment decision can be made efficiently without taking into account stock valuation. Whether a stock's current price properly reflects the intrinsic value of its business and the company's growth prospects is a key factor in determining future stock price movements.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S) and Price to Cash Flow (P/CF) with the company's historical values helps in determining whether the stock is fairly valued, overvalued or undervalued, while comparing a company with its peers on the basis of these parameters gives a good sense of the fairness of the stock's valuation.
The Zacks Value Style Score (part of the Zacks Style Scores system) pays close attention to both traditional and non-traditional valuation criteria to rate stocks from A to F (with An being better than B, B being better than C, etc.), which can be very helpful in identifying whether stocks are overvalued, fairly valued or temporarily undervalued.
NIO has been rated D in this regard, indicating that it is trading at a premium to its industry peers. Click here to see the values of the valuation metrics that drove this rating.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether the market buzz surrounding NIO is worth following, although its Zacks Rank of #4 suggests it may underperform the overall market in the near term.
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