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Is NIO Stock Still a Good Investment after the Surge?

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NIO (NYSE:NIO) stock has experienced a huge surge. In just over a month, the stock has risen by 200%, which brought its year-to-date gains to 186%.

NIO’s record June deliveries

The latest catalyst for the rise was NIO’s second month of record sales in June. The record sales assured investors that by delivering a consistently strong performance, NIO is in the game for the long run. However, shorts were squeezed. 

As we highlighted in Why are Shorts in TSLA, NIO, and NKLA Getting Burned?, NIO had a very high short interest. The high short interest is probably due to the short squeeze amid the share price surge and the stock price rally. 

Pullback in NIO stock?

Considering the climb of 41% in just two days, is NIO stock a good investment? The answer to this question lies in your investing timeframe. If you’re investing for the short term, then maybe stay put. Usually, after such rallies, the stocks pull back and take a breather. Investors shouldn’t be surprised to see a correction in the stock in the short term.

NIO’s fundamentals improve

However, these corrections are healthy and even necessary to take the stock to the next level. As we’ve seen in recent months, NIO’s fundamentals have been improving. The initial catalyst was the company’s financing arrangement with the Hefei government. 

The arrangement took care of investors’ concerns about NIO’s liquidity. Then, things started falling into place for the EV-maker. The macroeconomic landscape has also been improving due to auto demand recovering in China. The country’s push towards EV vehicles has helped NIO. Due to the battery swap technology, NIO is eligible for EV subsidies. 

EV penetration in China

So, if you’re investing for the medium to long term, there’s still huge potential in the stock. EV penetration in China is still very low. As China aims to increase the share of EVs in the overall auto market to 25% from 5% in 2019, NIO is one of the companies that can help the country reach this goal.

China’s push towards domestic firms

China prefers domestic companies over foreign ones. Although the Chinese government has supported Tesla (NASDAQ:TSLA), it will likely keep prioritizing local firms if the need arises.  As a result, NIO has a huge advantage over many of the other companies. Also, NIO’s cars are very well-liked in China. 

Due to the company’s unique user experience, clubs, lounges, and other perks for NIO owners, its customer base is loyal. The company’s popularity should help drive organic sales. 

Investing in NIO stock for the long term

So, the bottom line is that a patient and long-term investor has a lot to gain from NIO stock. In fact, going by some measures, the stock’s journey might just be getting started. As the company gets closer to its profitability, its credibility will rise. 

EVs will take market share from gas guzzlers. As EV penetration and adoption rise in China, NIO might be in the lead.  For more information on NIO, read here.

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