Down 91%, Is Nio Stock an Undervalued Stock to Buy on the Dip?

NEO reported 69% growth in its most recently completed quarter compared to the same quarter last year. What's more, these sales are coming with higher margins as its vehicle margin improved to 18.5%. These are impressive results for NEO, one of China's most prolific electric vehicle companies. Still, the share price is down almost 90% when looking back five years. And you know, I've been warning investors that NEO stock had been too expensive back in those days. And as early as this year, I've been warning investors that Neoto was too expensive. But recently, I upgraded NEO stock to a buy. That's the first electric vehicle company I've upgraded to a buying opportunity ever. So, do I still think NEO stock is a buying opportunity after I made that upgrade a little over a month ago? Let's take a closer look and answer the question. I want to thank the Mly Full for sponsoring this video. Visit full.com/parkev for the 10 best stocks to buy now. So, you can see the price performance here for NEO stock. It's down over 90% over the previous 5 years. It's now at $3.60 per share. Uh in 2022, 2021, this stock was above 40, approaching $45 per share. Of course, all throughout this time, I've been following the company. I've been warning investors that at those prices, it was too expensive. The company had great prospects. Its future was excellent. It delivered great cars. I mean, the most recent, I believe it's called the ES9 SUV. It's an amazing car. Better technology than a lot of the cars you'll see in the United States, but at a lower price. It's just an incredible feat that a lot of these Chinese car companies have been able to grow to challenge US and German automotive companies and gain significant market share worldwide. Even though most governments around the world are strongly strongly trying to keep these Chinese cars out because their local car companies can't compete against these companies from China. To be fair, these companies receive significant subsidies from the Chinese government to make their operations more cost effective. And so that lower cost of production is helping competitively for these companies to gain market share outside of China where sales are declining. But exports of these cars made in China are booming and NEO is one of the companies that's benefiting from that boom. Neo's sales soared to $16.3 billion over the trailing 12-month period. That's up from $10 billion a little while ago and up from just $2 billion in 2020. And see how quickly this company has expanded by offering and introducing new car models rapidly. Their pace of innovation has been faster than most other companies. Not only are they offering newer cars and newer models, but they also brought forth newer brands. The Firefly and the Envo brand are lower priced brands compared to Neo, which is a more luxury brand. And this has been successful rolling out not just in China, but in nearly every market that these cars are available. And it's because competitively, you know, I'm looking at cars in the car industry overall. When I comparison shop some of these cars, they're at lower prices and they look better than a lot of their competition. Now, I haven't been able to test drive any of these uh cars from Neo, but just from the looks of things, they look really impressive. And as I mentioned, these sales are not coming at the expense of margins. In fact, margins are improving dramatically. These sales are coming as a result of innovation. Neo has spent considerable sums of money in research and development. That's why they've been able to just bring to market so many new models and two new brands on top of Neo in such a short amount of time. And most of these models have hit the marketplace effectively. They've gained market share. They've gained consumer adoption. People appreciate the cars that Neo's bringing to the marketplace. Their margins have improved to -3.65%. 65%. That's up from -30% in 2025 and -35% in 2024. So sales are coming as a result of organic demand from customers as the company introduces models that are attractive and competitively priced. Of course, the situation is working in its favor more recently as the war in the Middle East and the war between Russia and Ukraine has caused oil prices to surge, making electric vehicles all the much more attractive compared to internal combustion engine vehicles. Neo has an interesting customer value proposition in that you can swap the battery and so that gets you moving in about 5 minutes compared to other electric vehicles that might take you 30 45 minutes to charge. And so that's also been a compelling customer value proposition. The ability to rent and not own the battery, to use the battery and not own the battery has been another compelling value proposition. So, of course, I've been talking about these things with NEO for several years. So, why did I only upgrade NEO stock recently? It's valuation. That's what I've always talked about with a lot of these companies, exciting companies that are very popular with retail investors. One of the reasons why I've warned investors about NEO over the many years is because of valuation. Investors may have looked at the falling stock price and thought to themselves that it was a buying opportunity on the dip, but the valuation never really made sense to me until recently. And the valuation has improved. It's now trading at a forward price to earnings of 28.3. This is the cheapest this stock has traded for ever in its history. So, finally, you're able to buy NEO stock at a compelling valuation with revenues surging. a favorable macroeconomic backdrop with higher oil prices, increasing demand for electric vehicles, which can be more expensive than internal combustion engine vehicles on purchase. But then you get the operating cost savings and the operating cost savings are even more now that oil prices and gas prices have surged worldwide. Similarly, when I looked at valuation using my discounted cash flow model, it looked more attractive at $3.60, near its 52- week low. In fact, near record lows for the company ever. It's now well below my fair value estimate for the business at $8.70. So this are these are the factors that caused me to upgrade NEO stock to a buy in a first ever for me among all of the EV companies that I'm following. NEO is the first one that earned an upgrade to a buy because I've been warning investors for several years about the EV industry. It was overhyped. The estimates for consumer demand for electric vehicles were significantly overestimated. And I've been saying that since 2020. And so there needed to be time for the market to adjust, for the valuations of these stocks to adjust to the realities of the marketplace. And so now I feel like those adjustments have occurred for NEO with the share price down 90% over the previous 5 years. So I will reiterate that I think finally this is a buying opportunity for investors that have a high risk tolerance because this is still risky business here. It's one of the riskiest stocks you can buy. So you've got to have a high risk tolerance here. But the valuation is attractive for those of you that