NIO Inc. (NIO) Is a Trending Stock: Facts to Know Before Betting on It

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NIO Inc. (NIO) has recently been on Zacks.com's list of the most searched stocks. Therefore, you might want to consider some of the key factors that could influence the stock's performance in the near future.

Shares of this company have returned -1.1% over the past month versus the Zacks S&P 500 composite's +4.5% change. The Zacks Automotive - Foreign industry, to which NIO belongs, has lost 2% over this period. Now the key question is: Where could the stock be headed in the near term?

Although media reports or rumors about a significant change in a company's business prospects usually cause its stock to trend and lead to an immediate price change, there are always certain fundamental factors that ultimately drive the buy-and-hold decision.

Earnings Estimate Revisions

Rather than focusing on anything else, we at Zacks prioritize evaluating the change in a company's earnings projection. This is because we believe the fair value for its stock is determined by the present value of its future stream of earnings.

We essentially look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates go up for a company, the fair value for its stock goes up. A higher fair value than the current market price drives investors' interest in buying the stock, leading to its price moving higher. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

NIO is expected to post a loss of $0.32 per share for the current quarter, representing a year-over-year change of +13.5%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.8%.

The consensus earnings estimate of -$1.37 for the current fiscal year indicates a year-over-year change of +21.7%. This estimate has changed +1.3% over the last 30 days.

For the next fiscal year, the consensus earnings estimate of -$0.96 indicates a change of +30.5% from what NIO is expected to report a year ago. Over the past month, the estimate has changed -2.7%.

Having a strong externally audited track record, our proprietary stock rating tool, the Zacks Rank, offers a more conclusive picture of a stock's price direction in the near term, since it effectively harnesses the power of earnings estimate revisions. Due to the size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, NIO is rated Zacks Rank #3 (Hold).

The chart below shows the evolution of the company's forward 12-month consensus EPS estimate: