NIO Trading Below 5-Year Average P/S: Time to Buy, Sell or Hold?

NIO Inc. NIO is currently trading at a forward 12-month price/sales (P/S) of 0.46X, down from its five-year average of 1.63X but at par with the Zacks Automotive-Foreign industry. The closest rivals of NIO, XPeng Inc. XPEV and Li Auto Inc. LI, are currently trading at forward P/S of 1.30X and 1.04X, respectively. Image Source: Zacks Investment ResearchImage Source: Zacks Investment ResearchWhile expanding vehicle line-up and new brand launches make NIO an attractive pick, operational inefficiencies and high leverage raise major concerns over its prospects. Over the past year, shares of NIO have underperformed its peers. While NIO was down 21.3% over the past year, shares of XPeng and Li Auto have gained 153% and 28.5%, respectively.Image Source: Zacks Investment ResearchChallenges in Managing the ONVO ProductNIO has expanded beyond its luxury lineup with the launch of a more affordable ONVO brand. It commenced deliveries of L60, ONVO’s first product, late in September. However, the sales performance of the ONVO brand did not meet the company's expectations in 2024, considering amortizations and other financial factors. Additionally, the company faces significant pressure and challenges in managing the ONVO product and its vehicle margin. The key driver of gross margin for the ONVO brand is not expected to materialize until the third quarter.High Costs and Debt to Hurt NIO’s ProspectsNIO has been bearing the brunt of operational inefficiency. In the last reported quarter, SG&A expenses were up 46.8% on a year-over-year basis. The trend is expected to continue amid an increase in personnel costs and an increase in sales and marketing activities. High operating expenses are likely to weigh on margins.The firm's long-term debt to capital ratio stands at 0.76, higher than the industry's 0.28. Elevated leverage restricts the firm’s financial flexibility to tap into growth opportunities. The company's declining cash position — from RMB 19.3 billion in December 2024 to RMB 8.1 billion in March 2025 — raises concerns about potential fundraising and shareholder dilution.Expected Rise in Deliveries & Vehicle Margin Hint RecoveryNIO appears poised for a robust growth phase, fueled by an expanding vehicle portfolio and strategic initiatives. NIO's strong vehicle lineup, including ES6, ET5T, ES8, EC6, ES7, ET5, ET7, EP9, EVE, ET9 and EC7 models, is aiding the company’s deliveries growth. In December 2024, the company launched a flagship smart executive sedan, the NIO ET9. In the first four delivery months, ET9 surpassed BMW7 Series and Audi A8 in China. In the second quarter, NIO expects to deliver 72,000 to 75,000 vehicles, reflecting a year-over-year growth of 25.5% to 30.7%. Amid volume ramp-up, new launches and cost optimization of components and supply chain, vehicle margins are on an upward trend. The metric grew to 10.2% in the first quarter of 2025 from 9.2% in the first quarter of 2024, due to lower material cost per unit. In late May, NIO launched and delivered the new ES6, EC6, ET5 and ET5T. ES6 is expected to have a vehicle gross margin of around 20%, with EC6 slightly higher. ET5 and ET5 Touring will also see margin improvements, keeping NIO's overall vehicle margin on an upward track. The company is likely to achieve its breakeven target in the fourth quarter of 2025.ConclusionDespite trading at a steep discount, well below its five-year average and behind peers like XPeng and Li Auto, NIO’s undervaluation reflects underlying operational and financial concerns. Rising SG&A costs, a stretched balance sheet and lower-than-expected performance from the ONVO brand highlight ongoing inefficiencies. However, there are encouraging signs of recovery. An expanding product lineup, strong delivery momentum and improving vehicle margins, especially from high-margin models like ES6 and EC6, signal that NIO’s fundamentals may strengthen in the coming quarters. The company’s goal of reaching breakeven by the fourth quarter of 2025 also boosts optimism. Investors may consider retaining this Zacks Rank #3 (Hold) stock in the long run; however, it does not look like an ideal entry point for potential investors.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. No obligation to spend another cent. Thousands have taken advantage of this opportunity.Thousands did not - they thought there must be a catch. Yes, we do have a reason. We want you to get acquainted with our portfolio services like Surprise Trader, Stocks Under $10, Technology Innovators, and more, that closed 256 positions with double- and triple-digit gains in 2024 alone.See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report NIO Inc. (NIO): Free Stock Analysis Report Li Auto Inc. Sponsored ADR (LI): Free Stock Analysis Report XPeng Inc. Sponsored ADR (XPEV): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks