With short sellers taking big positions in NIO, most shareholders do not understand what’s going on. In less than one year, the company’s share price has gone from $3 to $44. In addition, the stock returns are massive. Therefore, most short sellers believe that the stock price will most likely not increase further, which makes sense. However, there are other reasons to explain the most recent share price dynamics. I would like investors to have a look at the company’s guidance in 2019 and 2020. In my opinion, that’s what’s making the stock price move that fast.
2019 and 2020 Sales Guidance
In January 2019, the market was expecting that NIO would generate more than $10 billion in sales in 2021. Traders did not really believe such a claim. Notice that the share price was at less than $10. In the second part of 2019, sales guidance declined quite a bit. In that time period, the market was expecting 2021 sales of less than $4 billion. The new guidance pushed the share price to new lows. In 2019, the company’s share price touched a price mark of $2-$3. I wonder why the revenue estimate could change that much in such a short period of time. I don’t know who would invest in a company that moves its sales estimate that much.
In 2020, things changed a lot. From January to September, the sales guidance increased from less than $4 billion to more than $7 billion. Let me say it again. In one year, sales guidance increased more by than 80%. I wonder whether NIO will continue to deliver fantastic sales growth expectations, or expectations will decline again. In any case, I would expect investment analysts to be a bit lost in 2021. The company’s future sales are extremely unpredictable. As a result, it may be nearly impossible to generate any type of financial model.
More than 70% Sales Growth, And Class Actions Against NIO
There is more to come. According to financial analysts in the media, NIO’s sales growth will be massive. The market expects NIO to deliver 89% sales growth in 2021, and 57% sales growth in 2022. That’s a massive amount of new money. With these figures in mind, I wonder what we can expect from NIO. Sales expectations declined a lot in 2019 and 2020. Most investors will be afraid of happening the same thing again in 2021 and 2022.
Certain investors don’t remain silent when they lose money. In 2019, some investors, who lost tons of money, initiated a class action against NIO. In my view, the shareholders need to know about the claims of previous traders:
In the Kings County action, Sumit Agarwal v. NIO Inc. et al., Index No. 505647/2019, the complaint was filed on March 14, 2019. The judge has yet to be assigned and there has not been any major development. The plaintiffs in these cases allege, in sum and substance, that our statements in the Registration Statement and/or other public statements were false or misleading and in violation of the U.S. federal securities laws. These actions remain in their preliminary stages. We are currently unable to estimate the potential loss, if any, associated with the resolution of such lawsuits. We believe these cases are without merit and we are defending the actions vigorously.
Currently trading with a market capitalization of more than $60 billion, NIO has delivered more than 900% stock returns in less than a year. We could understand why short sellers are taking positions on the stock. In my opinion, sales estimates are extremely volatile. I don’t see how investment analysts could make financial models of NIO. In addition, I wonder whether sales growth in 2021 and 2022 will be in line with the market expectations. In my opinion, they seem extremely optimistic. To sum up, I would be careful about the stock.
Disclosure: We don’t hold shares of NIO