Stocks to sell

I’ve seen Nio (NYSE:NIO) stock called many things, including the Chinese Tesla (NASDAQ:TSLA) and the poster boy for IPO disappointment. Those are harsh words, and I’ve tried to defend Nio, but my “give it a chance”-attitude is fading fast.

It's Time to Cut Your Losses with NIO Stock and Move On

Source: Sundry Photography /

I do feel sympathy for folks who purchased Nio stock and watched helplessly as it powered its way up to $11, then down to $6, back up to $10, all the way down to $3 … and now struggling to recapture even the $2-level. Alas, were Nio’s harshest critics right all along?

A Bull Flips on NIO Stock

The Nio stock price’s recent low point was an abysmal $1.19, an almost unimaginable price not very long ago when the $3-level seemed normal and appropriate. NIO stock traders were becoming accustomed to a certain level of volatility in shares, it seemed, and perhaps they figured that things couldn’t get much worse after the stock price cratered in the wake of a Q1 2019 earnings disappointment.

Boy, were they wrong about that, as a full-on nosedive ensued following an Q2 earnings shocker: the experts were projecting an earnings-per-share loss of 18 cents, while the actual result was a loss of 45 cents per share.

The company added fuel to the conflagration by canceling the conference call that had been scheduled for the morning of the earnings announcement; I can understand not wanting to face the music with such a dismal result, but canceling the post-earnings conference call wasn’t exactly confidence-inspiring.

In light of this, Goldman Sachs analyst and former staunch Nio bull Fei Fang went full-on bearish on the company, citing Nio’s extremely negative cash flow along with declining sales volumes. Fang had held onto his buy rating for seven consecutive months, through thick and thin (mostly thin) even while the Nio stock price stair-stepped its way down to a 74% year-to-date loss; unfortunately for the shareholders, Fang’s rating on NIO has now been downgraded to neutral.

Is NIO a Company on Borrowed Time?

Usually I wouldn’t place too much stock (no pun intended) in an analyst’s opinion, but with the company itself admitting that it’s expecting its high cash-burn rate to persist, it’s hard to blame Fang for showing his fangs (seriously, no pun intended) and slashing his target for the NIO stock price.

Besides, analysts must periodically adjust their price objectives as stocks rise and fall; therefore, Fang wasn’t necessarily overdoing it when he cut his NIO stock price target by 85%, from $9.76 to $1.47. Sure, that seems a bit harsh, but a price objective of nearly $10 simply wouldn’t make sense anymore.

In fact, it could even be argued that Fang is still being generous; analysts at research firm Sanford C. Bernstein have been much more critical, asserting that Nio is facing a “clear and present danger” of full insolvency while boldly maintaining that the company’s “liquidity is now measured in weeks.”

Now, I’m not saying that you shouldn’t invest in the electric-vehicle market at all. As economics Professor Jing Li of the Massachusetts Institute of Technology observes in a study on the American EV market, “The electric vehicle market has expanded since its inception in late 2010 and is projected by industry analysts to grow much more in the coming decades.”

Thus, I have nothing against EV-market investing; I’m only trying to alert Nio bulls to the dangers of a company and a stock in free fall — and suggesting, perhaps, that cutting your losses might not be a terrible idea as more analysts flip and the share price continues to dip.

The Takeaway on Nio Stock

I’m not the sort of hero who’ll defend a company when existential threats converge and long-standing bulls in the analyst community jump ship. You’re welcome to stay the course with NIO stock if you want to, but I’m not going down with that ship — when the analysts panic, it’s time to get off the Titanic.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

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