NIU (NIU) is a famous Chinese scooter brand. It is founded by the former Baidu CTO (Google Chinese). The company has existence in more than 38 countries in the world. It currently has more than 1,050 stores across China.
NIU has created a new two-wheeled category electric vehicle market and is committed to providing more practical and more favorable global customers with smart urban mobility vehicles to redefine urban mobility and improve life. Niu’s lifestyle brand promotes technology, beauty, and freedom.
Niu, as of now, designs, manufactures and sells high-performance bicycles, motorcycles, and mopeds. Niu has a seven series portfolio, four household sets, including NQI, MQI, and UQI with intelligent functions and Gova, two sequences of RQI and TQI urban electric motorcycles, and a series of performance bicycles.
Various products meet the needs of different segments of modern urban residents and resolve the requirements of different urban travel scenarios while being united through a common design language focusing on style, freedom, and technology. Niu has developed an omnichannel retail model in which it integrates offline and online channels, selling its products, and providing various services.
Niu continues to report growth in double-figure sales in China and international markets. Despite the pandemic location of Covid-19, most investors will be very impressed by Niu’s results. In total, sales increased by 36.7% in the third quarter of 2020 compared to that of the third quarter of 2019. The most exciting market is China, where NIU has obtained a 39.2% increase in sales in the quarter.
The first two quarters of 2020, i.e., Jan-Mar and Apr-June were quite detrimental because of the COVID-19 pandemic. As a result, in the nine months ended September 30, 2020, sales increased by only 15%. Apart from this, Niu has increased its R&D expenditures. In 9M 2020, R&D expenditures increased by 57% compared to the figure stated in 2019. Most investors expect NIU to be a growth undertaking. To increase sales in the future, it must offer excellent and innovative products. In my opinion, the company must invest in R&D for this purpose.
Valuation could be done by predicting the sales for five years, put it multiple on, and put it back to the present. Whatever value comes, it can then be compared to the current market value to see if it is equal to or less than fair value.
Analysts seem to estimate sales of $378 million for 2020, although this is high given the company’s creation. Therefore, using $350 million for 2020 and using a growth rate of 36.7% for five years (Q3 rate), sales become $1.67 billion by 2026.
Then we put a multiple on these sales. For example, today, the market is 6.7 times sales. This puts its future market value at $11.19 billion (i.e., 6.7 times $1.67 billion).
Finally, we need to use the current factor of value. To be conservative, put back the future value of 15%. This translates into a present value factor of 49.7%. As a result, the fair value for Niu stock may be $5.56 billion, 140% higher than today.
Disclosure: We don’t hold shares of NIU