Nio Down 20% From Record High: Is The Momentum Fading?

Nio Inc – ADR NIO shares were on a roll at the start of July, culminating in the stock racing to an all-time high earlier this week.

To The Peak and Back: Nio's stock moved out of a rangebound phase July 2, reacting to its June deliveries report. Thanks to the rally that followed, on July 8, the stock broke above its previous record of $13.80 reached immediately after its Sept. 2018 IPO.

The stock made further headway over the next few sessions, making successive closing highs July 9 and July 10. Nio's stock hit its best ever level of $16.44 in the July 13 session.

The overall EV market buoyancy and fundamental improvements played a major part in lifting the stock to record territory.

Signaling a loss of momentum, the stock has seen some weakness since its July 13 highs. From $16.44, the stock has lost about 18%, trading around $13 at the time of writing.

Profit Taking Behind The Weakness? With nothing changed between the period since Nio took off and now, and no catalyst in the works, it's safe to assume some investors might be cashing in on the recent gains, generating selling pressure in the stock.

With the recent rally, Nio's valuation was stretched. Nio's shares are trading at 14 times its trailing 12-month sales compared to bigger rival and market leader Tesla Inc's TSLA 10.90.

The average price target for Nio, based on five analysts covering the stock over the past three months, is $5.70, with the high and low forecasts at $7.30 and $2.50, respectively, according to TipRanks.

Although the sell-side isn't that optimistic of further gains, the prospect offered by the burgeoning EV market in China and Nio's prudent execution don't rule out the possibility.

A lot would ride on how Nio capitalizes on the resurgence of demand post-COVID and the financial discipline it exercises.
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