“Armchair Trader Series” Recommendations
- Week Beginning -
Monday,  February 15, 2021

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

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"Trading Capital Management"



Options Trade – Nio Inc – ADR (NYSE: NIO) Calls

Monday, February 15, 2021

** OPTION TRADE: Buy NIO APR 16 2021 70.000 CALLS at approximately $6.10. (Max. $6.50)

 Place a pre-determined sell at $12.20.

Also include a protective stop loss of $2.45.

Prelude…..

At the beginning of January we executed a trade on Nio Inc – ADR (NYSE: NIO) which cost $4.75 and then proceeded to climb to $12.79 in a short period of time, providing potential profit of 169%.

It is now time to execute a new trade on NIO.

Red-hot electric vehicle stock Nio continues to dominate the Street with dazzling returns. Its latest feat came on Tuesday after the momentum darling surged 6.4% amid a groundswell in volume. The rally signaled an end to its consolidation phase and the beginning of its next advance. In other words, NIO stock is well-rested, fueled up, and ready to rise once more.

So far this year, Nio stock is up nearly 24% and up almost 1,460% in the past year. At the current market value of $88.86 billion, Nio stock is at nearly 12 times analysts’ estimates of $7.569 billion in sales this year.

By contrast, Tesla (NASDAQ:TSLA) trades for almost 24 times revenue for this year and 16 times next year. If Nio were to trade at 24 times the forecast of $7.569 billion of revenue, its market value would be $181.66 billion.

That represents a potential rise of 105.15% above the current market value of $88.55 billion. In other words, the price target is $123.83 per share (i.e., 105.15% higher than the current price of $60.27.)

About Nio…..

Founded in 2014, the company originally operated under the name NextCar, changing it to NIO in July 2017. In its Chinese form, the name translates to "Blue Sky Coming," which stems from management's vision of a future with azure skies absent the pollution from

Raising $1 billion during its initial public offering, NIO debuted as a publicly traded company on the American market in September 2018. On its first day of trading, the stock opened at $6, closed at $6.60, and traded as high as $6.93 for a reasonable pop.

On Sept. 24, 2018, the company achieved a new Guinness World Record when Chen Haiyi from China ascended the Purog Kangri glacier in Tibet and reached an altitude of 18,751 feet in the NIO ES8, setting a record for the highest altitude achieved in an electric car. According to the company, the feat was meant to demonstrate the EV's prowess in high altitude and extreme cold.

While NIO's vehicles may only be seen on the roads of China, the company is drawing on talent from a worldwide pool of employees. In San Jose, California, for example, the company's North America headquarters is home to more than 500 employees who primarily focus on software development. According to the company, the London office works on "commercial Formula E [race car] management, strategic management, and our supercar development." Nearly 200 employees in the Munich office concentrate on product and brand design.

Influencing Factors…..

Nio posted another good month of higher deliveries in January 2021. And although the electric vehicle (EV) firm will release its fourth-quarter earnings on March 1, its January deliveries show that Nio stock is still undervalued.

Nio said that it delivered 7,225 EVs in January, which was 352% above the prior year. As well, this represents a 3.1% growth even over December with 7,007 deliveries, the previous highest number at the company.

A recent report by the China Passenger Association reported that in the month of January alone, Chinese retail sales of passenger cars rose 25.7% on a year-over-year (YOY) basis. This brought the total to 2.16 million vehicles, the highest level since 2016.

Moreover, sales of electric cars grew 281.4% YOY to 158,000 in January. This was despite a month-over-month drop of 23.9%, which might be expected from the higher Christmas related sales in December. The point is that sales EVs in China are growing more than 10 times faster than overall passenger sales, at least on a YOY basis.

There is every reason to believe that EVs will continue to grow exponentially in China. Therefore, Nio will gain its share.

Analysts Thoughts.....

Nio is entering its next phase of expansion. Last week, the EV maker announced it is partnering with the Hefei Anhui municipal government in China to build a new energy vehicle industrial park.

The city has ambitions to become a center for EV production, which the Hefei Xinqiao Smart Electric Vehicle Industrial Park, should help realize.

The NIO China HQ is already based in Hefei and the new park will support production, R&D, pilot demonstration and various service facilities.

It is not the first time the province and Nio are crossing paths. Last April, entities led by the Hefei government injected $1 billion of cash into the company, which at the time was struggling to stay afloat.

The Hefei government and its affiliates intend to re-invest all profits from the equity investments back into the NIO China partnership.

“In our view,” said Deutsche Bank analyst Edison Yu, “This lays the groundwork for capacity expansion to help NIO reach its +300k longer term volume target or nearly 3x current capacity. Details were not provided on financing sources, but we suspect there will be large support in the form of bank credit lines or arrangements similar in nature.”

Nio is also making moves further afield. A recent Linkedin post by the company said it was looking for someone to “formulate an action plan to enter the US market.”

However, Yu believes that if the company moves forward with its intentions, it “would still be several years away and be a very tough endeavor given geopolitical backdrop, although the new Biden administration could potentially be seen as less antagonistic.”

That said, elsewhere across the globe, there should be more near-term developments. The company is set on entering the European market before the end of the year.

Yu expects Norway to be the first destination. Positions based in Oslo are already being advertised on Linkedin and Yu says NIO gave a hint of where it is heading, when at the ET7’s launch event, the company put a picture of the Karl Johans gate on the center screen navigation map.

Based on the above, Yu reiterated a Buy rating on NIO shares along with a $70 price target.

The analyst consensus rates the stock a Moderate Buy based on 8 Buys and 5 Holds.

Summary.....

Look for Nio stock to continue to track higher, especially if earnings and sales come in higher than forecast. Right now, Nio stock looks at least much undervalued for a price target of $85.86 per share.

What’s most impressive about NIO stock is the consistency of its trend. It’s been a trend follower’s dream, offering a master class of how bullish patterns are supposed to work.