NIO’s stock price has run up substantially in about a month. As a result, Wall Street analysts’ target prices have a lot of catching up to do. Analysts’ average consensus target price implies a downside of 58% for NIO stock.
Analysts’ “wait and see” approach for NIO stock
Currently, analysts are following a “wait and see” approach for NIO (NYSE:NIO) stock. Among the 13 analysts covering the stock, about 70% have a “hold” recommendation, according to data compiled by Thomson Reuters. Meanwhile, 15% recommend a “buy” and 15% recommend a “sell” for NIO.
Goldman Sachs downgrade
The most recent analyst action for NIO came from Goldman Sachs. The bank downgraded the stock to “neutral” from “buy” on June 24. To learn more, read NIO Investors Shouldn’t Worry about Goldman Sachs’s Downgrade. While the bank is positive on the stock’s fundamentals, it thinks that the stock ran up too much, which led to overvaluation.
Analysts’ target price trails NIO’s current market price
After Goldman Sachs’s downgrade, the stock has run up by another 83%. Analysts’ actions usually lag the stock price movements instead of predicting them. In June, Goldman Sachs had to increase its target price by more than 200% to reach the target price of $6.4 and upgrade it. While downgrading NIO, Goldman Sachs still increased the target price to $7. Currently, the new target price is also trailing the current market price by 47%.
Target prices imply deep downside
J.P. Morgan upgraded NIO from “underweight” to “neutral” on May 27 and increased the target price to $3.5 from $2.0. However, the current target price implies a downside of 74%. In May, Bank of America also upgraded NIO from “neutral” to “buy.” The target price of $5 implies a potential downside of 62%. With a “buy” rating, the huge potential downside doesn’t make sense.
Analysts need to catch up with NIO’s stock price
To catch up with NIO’s current price, analysts will have to increase their target prices or downgrade their ratings. However, Goldman Sachs, J.P. Morgan, and Bank of America are positive about the company’s long-term fundamentals. They could downgrade their ratings based on the valuation amid the stock run-up.
Does the stock rally have legs?
The reason for the stock rally is also important to consider. The most recent rise in the stock price is due to record and consistently strong deliveries data. The positive news led to a short squeeze, which pushed the stock even more. Since the company has started delivering and even beating its guidance consistently, investors can see the profitability picture more clearly. Therefore, Wall Street analysts could make a move to catch-up with the stock price.
Read Is NIO Stock Still a Good Investment after the Surge? to learn more.