Trading NIO's 100% Surge Amid Electric Vehicle Recovery
Recent market turmoil has taken attention away from some of the big themes that were developing last year. This includes the growth in electric vehicles – a space that has also been affected by supply chain constraints and rising Covid infections in China.
However, a key concern related to Chinese stocks listed in the US could now have passed with Beijing preparing to meet a key demand of US regulators.
While shares in Chinese electric vehicle maker NIO are down more than 40% this year, most analysts still remain bullish in the long-term providing a platform for a potential turnaround as discussed below.
|Symbol for Invest.MT5 Account:||NIO|
|Date of Idea:||13 April 2022|
|Time Line:||1 - 6 months|
|Position Size for Invest.MT5 Account:||Max 5%|
- The Invest.MT5 account allows you to buy real stocks and shares from 15 of the largest stock exchanges in the world.
All trading is high risk and you can lose more than you risk on a trade. Never invest more than you can afford to lose as some trades will lose and some trades will win. Start small to understand your own risk tolerance levels or practice on a demo account first to build your knowledge before investing.
Why Trade NIO Stock?
In NIO’s most recent quarterly earnings report, the EV maker reported better than expected sales but forecasted future deliveries that were below analyst estimates. Most of NIO’s recent woes have been down to the global semiconductor shortage, production facility closures in China due to Covid and a general move away from growth stocks as interest rates rise around the world.
As most analysts will point out, most of these factors are likely to be temporary and have also been seen in other companies. Tesla had to shut down its Shanghai facility last month as well. Even with all these headwinds, NIO delivered 26,000 cars in the first quarter of this year which is 30% more than the same period last year.
This highlights the growing demand for EVs and how NIO could be well-positioned to capitalise on it.
A critical headwind for US-listed Chinese stocks could be easing
Chinese stocks listed in the US have faced a lot of pressure from regulators to meet accounting transparency rules or be delisted. This is one reason why many Chinese stocks have been under pressure.
However, at the start of the month, US-listed Chinese stocks surged higher after the Chinese Securities Regulatory Commission drafted a new framework that would satisfy US regulators and allow Chinese companies to maintain their US listings.
If the changes are approved by Beijing and Washington, a huge cloud of uncertainty will be lifted from Chinese stocks such as NIO, providing a very interesting opportunity for investors comfortable with a higher degree of risk.
Demand for electric vehicles is set to increase, along with EV sales
Last year, NIO CEO William Li stated that by 2030, 90% of new car sales in China will be electric vehicles. Currently, the largest market for EV sales is in China as it has the backing of the government which has attributed 5%+ of GDP growth to come from the sector.
However, a resurgent Covid in China has forced many cities into new lockdowns and shuttered some production plants. This contributed to the recent weakness in NIO’s share price but could also be a temporary situation with analysts and investors looking to growth prospects in the long term.
Hedge funds have actively increased their positions in NIO
According to TipRanks, the latest 13F filing report of 203 hedge funds submitted to the Securities and Exchange Commission (SEC) shows that hedge funds increased their holdings in NIO by 216.0k shares in the last quarter.
In fact, hedge fund buying has increased every quarter since the beginning of last year.
Source: TipRanks, 13 April 2022
NIO Stock Forecast - What do the Analysts Say?
According to analysts polled in the last 3 months by TipRanks for a 12-month NIO stock forecast, there are currently 16 buy, 2 hold and 0 sell ratings on the stock. The highest price level for a NIO stock forecast is $87.00 with the lowest price target at $28.30.
The average price target for a NIO stock forecast is $43.51 which represents a near 120.86% upside potential from current levels, at the time of writing.
Analysts at Goldman Sachs and JP Morgan reiterated their buy ratings on the stock within the last 18 days.
Source: TipRanks, 13 April 2022
An Example Trading Idea for the NIO Stock Price
An example trading idea for the NIO stock forecast could be as follows:
- Buy the stock on a break above $24.00 to allow for current volatility.
- Target just below the average analyst price target at $43.00.
- Keep your risk small at a maximum of 5% of your total account.
- Time Line = 1 – 6 months
- If you buy 10 NIO shares:
- If target is reached = $190.00 potential profit ($43.00 - $24.00 *10 shares).
It’s wise to remember that the share price is unlikely to go up in a straight line and it may even go much further down before it rises, especially considering the recent sell-off in global stock markets.
Therefore, be sure to exercise good risk management which is one of the most important aspects of trading successfully. You should always know how much you could potentially lose on a trade and the risks involved.
Another factor to consider is the commission as these can eat into your profits. With the Admirals Invest.MT5 account you can buy US stocks from $0.02 per share. This means buying 10 shares in NIO stock would result in a commission of $0.20 ($0.02 * 10 shares).
There is a low minimum transaction fee of $1. So, the example trading idea above would result in a commission of just $1 overall!
How to Buy NIO Stock in 4 Steps
With Admirals, you can buy shares in US companies like NIO with a low commission of just $0.02 per share and a low minimum commission of just $1.
- Open an account with Admirals to access the Trader’s Room.
- Click on Trade on one of your live or demo accounts to open the web platform.
- Search for NIO at the bottom of the Market Watch window and drag the symbol onto the chart.
- Use the one-click trading feature, or right-click and open a trading ticket to input your trade size, stop loss and take profit level.
Source: Admirals MetaTrader 5 Web. Past performance is not a reliable indicator of future results, or future performance.
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Do You See the NIO Stock Price Moving Differently?
Remember that all analytics and trading ideas are based on the personal view and experience of the author.
If you believe there is a higher chance NIO's share price will move lower, then you can also trade short from a CFD (Contracts for Difference) trading account which Admirals also provide.
This means you can trade long and short to potentially profit from rising and falling stock prices. Learn more about CFDs in this How to Trade CFDs article.
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