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Weakness in NIO Stock Might Be a Buying Opportunity

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  • NIO stock fell 5.1% on Wednesday. Futures point to a weak opening today as well. The stock has been on a fire this month and made a 52-week high of $7.90 on June 22.
  • Since then, the stock has fallen 13.2%. On Wednesday, Goldman Sachs downgraded the stock. Is the recent weakness a buying opportunity?

NIO stock

NIO stock fell sharply intraday on Wednesday. While the stock recouped some of its losses, it eventually fell 5.1%. Now, the stock is down 13.1% from its 52-week high, which it hit earlier this week. Goldman Sachs downgraded NIO (NYSE:NIO) on Wednesday. The firm upgraded the stock recently. However, the sharp rise in NIO stock seems to be making analysts apprehensive. Even after the recent sell-off, the stock is up 72% so far in June.

Analysts downgraded Tesla

Before NIO, analysts warned about Tesla (NASDAQ:TSLA) stock as well. On June 12, Morgan Stanley and Goldman Sachs downgraded the stock. Tesla has risen 83% in the second quarter and 129% year-to-date. While Tesla stock fell after the downgrades, it recouped the losses and crossed the $1,000 price level again. Investors have chosen electric vehicle makers this year despite several analysts warning about overvaluation.

Tesla and NIO stock

Can NIO stock also defy analysts’ pessimism like Tesla? As I noted previously, analysts have been behind the curve on EVs (electric vehicles). However, the sharp rally in EV makers, including Nikola, raises fears of a bubble. EV makers have made the most of the frenzy by issuing shares to capitalize on investors’ interest. NIO also issued shares to strengthen its balance sheet.

Should investors get greedy?

In my view, investors have to take a long-term view of the EV industry. There’s little denying that valuations have started to look overstretched for EV makers. It’s difficult to justify Nikola’s market capitalization surpassing Ford’s (NYSE:F) or Tesla’s market capitalization surpassing Volkswagen and Toyota. NIO’s market capitalization was $7.8 billion based on Wednesday’s closing prices. However, the company has a big debt load to cope with.

The overall market sentiment has been quite bullish toward EV makers. Investors have used every fall as a buying opportunity. So far, being greedy on NIO stock has worked well this year. We’ll have to see strategy continues to be successful.

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